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									U.S. DEPARTMENT OF COMMERCE
International Trade Administration
         Washington, D.C.
         September 2002
Library of Congress Cataloging-in-Publication Data

China environmental technologies export market plan.
       p. cm.
   1. Pollution control equipment industryÐChina. 2. Pollution control equipment
   industryÐUnited States. 3. ImportsÐChina. 4. Export marketingÐUnited States.
   5. PollutionÐChina. 6. Market surveysÐChina. I. United States. International Trade
   Administration.

   HD9718.C62 C48 2001
   382Õ.4568176--dc21
                                                                            2001051470




ISBN: 0-16-051189-5

For sale by the Superintendent of Documents, U.S. Government Printing Office
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Illustration on page viii courtesy of the Central Intelligence Agency.




The full text of this report is available on the International Trade AdministrationÕs
Internet site at www.environment.ita.doc.gov. Reprints on paper or microfiche are
available for purchase from the National Technical Information Service, 5285 Port
Royal Road, Springfield, VA 22161; www.ntis.gov.




          Federal Recycling Program
          Printed on recycled paper.
                                     Acknowledgments
   This report was prepared by Sinosphere, Inc., under   Beijing. Conclusions and statements expressed in this
contract to the Office of Environmental Technologies     report are those of the contractor and do not necessari-
Industries of the U.S. Department of Commerce,           ly represent the views or policies of the U.S.
International Trade Administration, with assistance      Department of Commerce or the U.S. government.
from the U.S. and Foreign Commercial Service,




                                                                                 China Export Market Plan iii
                                                                    Contents



     Abbreviations and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii
     Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix
 1 The Market for Environmental Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
 2 Economic Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
 3 Legal and Policy Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
 4 The Water Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
 5 The Solid Waste Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
 6 Air Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
 7 The Environmental Services Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
 8 Resource Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
 9 Finance Programs and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
10 Positioning U.S. Exporters in the Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80


Appendices
     Appendix A: Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
     Appendix B: China Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98
     Appendix C: International Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
     Appendix D: Legal and Market Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108
     Appendix E: Web Sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
     Appendix F: Development Zones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116




                                                                                                                          China Export Market Plan v
                      Abbreviations and Acronyms

ADB      Asian Development Bank                  OECD                Organization for Economic
                                                                     Cooperation and Development
BOT      build-operate-transfer
                                                 OECF                Overseas Economic Cooperation
CDB      China Development Bank
                                                                     Fund of Japan
CESTT    Center for Environmentally Sound
                                                 PDF                 project development funds
         Technology Transfer
                                                 PM                  particulate matter
CFB      circulating fluidized bed
                                                 PPP                 public private partnership
CIDA     Canadian International
         Development Agency                      PRC                 PeopleÕs Republic of China
COD      chemical oxygen demand                  RMB                 yuan renminbi (Chinese currency)
CRAES    Chinese Research Academy of             SDPC                State Development and Planning
         Environmental Sciences                                      Commission
CSRC     China Securities Regulatory             SEPA                State Environmental Protection
         Commission                                                  Administration
EIA      environmental impact assessment         SETC                State Economic and Trade
                                                                     Commission
EPB      environmental protection bureau
         (provincial and local levels)           SOE                 state-owned enterprise
EPU      Environmental Projects Limit            TDA                 Trade and Development Agency
ETI      Environmental Technologies Industries   TEC                 total emissions control
Ex-Im    Export-Import Bank of the               TIPC                total investment in pollution control
         United States
                                                 tpd                 tons per day
FAS      free alongside ship
                                                 TSP                 total suspended particulate
FGD      flue gas desulfurization
                                                 TVIE                town and village industrial enterprise
GDP      gross domestic product
                                                 UNCHE               United Nations Conference on the
GEF      Global Environment Facility                                 Human Environment
GTZ      Deutsche Gesellschaft fŸr Technische    UNDP                United Nations Development Program
         Busammenarbeit (German Technical
                                                 UNEP                United Nations Environment Program
         Corporation)
                                                 UNIDO               United Nations Industrial
HSE      health, safety, and environment
                                                                     Development Organization
HTS      Harmonized Tariff Schedule
                                                 USAEP               United StatesÐAsia Environmental
IFC      International Finance Corporation                           Partnership
IPR      intellectual property rights            USAID               U.S. Agency for International
                                                                     Development
JEXIM    Export-Import Bank of Japan
                                                 WFOE                wholly foreign-owned enterprise
JV       joint venture (enterprise)
                                                 WHO                 World Health Organization
JBIC     Japan Bank for International
         Cooperation                             WTO                 World Trade Organization
MIGA     Multilateral Investment Guarantee
         Agency
MOFTEC   Ministry of Foreign Trade and
         Economic Cooperation
                                                 Note: Unless otherwise noted, dollar figures given are U.S. dollars.
NGO      non-governmental organization
                                                 The exchange rate for the Chinese yuan, or RMB, has been calcu-
NPC      National PeopleÕs Congress              lated at 8.3 to the U.S. dollar.




                                                                              China Export Market Plan vii
viii U.S. Department of Commerce, International Trade Administration
                                       Executive Summary



Environmental protection is currently receiving more           law remain lacking in many instances. The government
attention in Chinese domestic policy than ever before,         appears to be aware of these conflicts and the fact that
and all indications are that this attention is going to con-   they must be addressed if the private sector is to play a
tinue to increase. Spending on environmental protection        considerable role in the environmental protection plan.
topped 1 percent of ChinaÕs gross domestic product             The rate and efficacy with which these issues can and
(GDP) for the first time in 1999, and investment rates         will be addressed is uncertain.
are expected to continue rising. Similarly, citizen               There is already a trend toward the liberalization of
awareness and the demand for environmental well-               environmental service tariffs. Water prices are rising,
being are increasing. The central government, increas-         and some investors report cooperation from local
ingly cognizant of the financial and social costs of a         governments in setting water prices at rates that offer
deteriorating environment, has clearly made its protec-        potential for returns on long-term facility investments.
tion a priority.                                               Similar tariff liberalization may carry over to
   In November 2000, the Chinese Research Academy              wastewater treatment and, in due time, to solid waste
of Environmental Sciences (CRAES) estimated that               management as well. Nonetheless, the common consen-
RMB 700 billion ($85 billion) would be needed to               sus is that, in order to enter the market and eventually
meet the environmental goals of the Tenth Five Year            turn a profit, investors must have both ample finances
Plan (2001Ð2005). Other estimates indicate that as             and patience.
much as hundreds of billions of U.S. dollars will be              Because most of the government bodies and enter-
necessary to address all the issues thoroughly. The            prises (both SOEs and private enterprises) seeking to
World Bank has estimated that 2 percent of GDP will            invest in environmental protection work under financial
be needed just to bring air quality standards within           constraints, it is critical that the technologies they invest
range of those seen in the United States in the 1980s.         in are efficient and affordable. A fundamental underly-
Regardless of the estimations observed, the central            ing indication of this market analysis is the Chinese
government is expected to contribute only 11.4 percent         demand for innovative technologies that can provide
of the CRAES estimate ($9.7 billion) over the next five        significant results at relatively low marginal costs, man-
years, while 34 percent of that estimate (nearly $29 bil-      agement and clean production schemes that can assist in
lion) is expected to be sourced from provincial and            the attainment of efficiencies, and innovative recycling
local governments and 55 percent (over $46 billion)            techniques that can turn waste products into money-
from business enterprises themselves.                          generating commodities.
   The financial demands indicate a strong need for               Yet, before attempting to enter the Chinese market,
non-public investment, whether it be directly from             it is important to keep in mind the eccentricities of
Chinese state-owned enterprises (SOEs), from the               doing any sort of business in China. Numerous com-
small but growing domestic private sector, or from a           plications and barriers, many of which are addressed
variety of foreign investment channels. Under ideal            in detail throughout this document, are encountered
market-oriented circumstances, such investment might           by nearly all exporters and foreign investors that enter
materialize with relative ease, but as the system cur-         the Chinese marketplace. Perhaps paramount among
rently functions, it remains challenging to operate prof-      those is personal relations, referred to in Chinese and
itably in ChinaÕs environmental sector. This is due in         colloquially among non-Chinese as Òguanxi.Ó
part to the facts that pricing strata for environmental        Personal relationships are often at the core of business
services such as waste and water management do not             dealings in China. For those who lack the time,
reflect the actual costs of providing those services,          money, ability, or interest to establish such relations
guarantees and security mechanisms are not well estab-         and presence in China, an increasing number of serv-
lished to mitigate the risks of private investment, and        ice providers with extensive connections and know-
legal transparency and equitable enforcement of the            how can, for a fee, provide the necessary connections,



                                                                                          China Export Market Plan ix
networking, and guidance. Regardless of the facilitation     1. The real demands for environmental protection
and assistance sought, entry into the Chinese market            in China,
can be a slow and sometimes exasperating process;            2. The current investment climate in the environmental
those willing to spend the time and effort may find the         protection industry and developing trends that may
payoff worthwhile in the end.                                   affect it in the near and medium-term future,
   For the purposes of this report, the environmental        3. Methods to access the market and potential
sector is divided into the water sector, the solid waste        results that can be reasonably expected from
sector, the air sector, the services sector, and resource       investment efforts.
management. All of these sectors present unique oppor-
tunities and complications, which are discussed in turn         This report does not provide comprehensive lists of
in the corresponding chapters. Additionally, efforts to      industries looking to buy or manufacture equipment,
enter markets in any of the sectors are subject to a rela-   local governments looking to implement initiatives, or
tively standard set of conditions that apply across the      massive infrastructure development programs that may
environmental sector and in some cases to foreign            offer opportunities to technology providers, as all these
investment in China in general; these conditions are         types of information are time dependent and would be
addressed in the remaining chapters.                         obsolete soon after printing. It does, however, indicate
   This market study aims to clarify three things for        channels by which investors can find this information
U.S. companies looking to invest in ChinaÕs environ-         while offering insights into what the market may have to
mental protection industry:                                  offer as China pursues its goal of rapid modernization.




x U.S. Department of Commerce, International Trade Administration
                                                     Chapter 1
           The Market for Environmental Technologies


ChinaÕs domestic environmental technology industry,            priced goods and services. Trends indicate that Chinese
according to local government and business leaders,            end users prefer to buy equipment and parts produced by
does not lack the ability to produce standard environ-         Western-invested JVs and WFOEs due to inherent qual-
mental protection equipment. However, the quality and          ity differences. JVs and WFOEs can also maintain com-
innovative character of this equipment is widely known         petitiveness by avoiding customs tariffs and taking
to be poor, and the countryÕs demand for reliable, afford-     advantage of reduced production and labor costs that
able, and effective environmental protection equipment         exporters cannot. Changes associated with WTO acces-
is not satisfied. Many of the potential consumers of such      sion are influencing these realities and should be consid-
equipment lack access to necessary finances. The man-          ered when developing a market strategy. (See further
agement skills and know-how needed to use the avail-           discussion of the WTO later in this chapter.)
able technology effectively remain substandard,                   Despite the broad range of environmental legisla-
severely cutting into the efficient allocation of what lit-    tion that has been promulgated over the past decade
tle funding is available.                                      and will likely be promulgated in the decades to come,
    Chinese-produced equipment that is of lesser quality       regulation remains weak or non-existent. Chinese
than similar foreign-produced equipment is often               environmental protection is not regulation driven but
favored by Chinese end users, as it makes up for its           rather economically driven; the economy and its
shortfalls in quality by being less expensive and domes-       forces, meanwhile, can be described as somewhat mar-
tically produced. In some instances, purchasers are            ket oriented although controlled by seemingly monop-
beginning to favor more expensive, higher-quality              olistic behavior. Once this is understood and a
exports as maintaining mediocre domestically-pro-              marketing strategy is developed that provides an eco-
duced equipment proves to be inefficient. Nonetheless,         nomic and profit-driven explanation for the use of a
it is difficult for foreign technology producers exporting     product, then market entry may be possible. Such a
to China to enter the market competitively with prod-          market strategy would require indications not only that
ucts that are similar in design or function to anything        a proven technology is technically appropriate for a
already produced in the country. The exceptions to this        task but, more important, that savings can be realized,
rule are exporters that are able to provide equipment at       that the payback period for an investment would be
significantly reduced prices and those that offer attrac-      favorable, and ultimately that profitability could be
tive support packages. Such exporters remain few,              enhanced. More sophisticated and costly technologies
given such factors as high import tariffs, reduced pro-        might require creative financing, in which the vendor
duction costs in China, and various other market barri-        would initially carry some of the cost, thus shoulder-
ers. Changes associated with the accession of China to         ing some risk in proving that the technology is viable,
the World Trade Organization (WTO) are having a ben-           and would later be paid back from the accrued savings
eficial impact.                                                or profits according to a pre-arranged formula.
    Vendors looking to export equipment to China need
either to provide exceptional products brokered through
a reliable local representative or to enter the market indi-   ChinaÕs Real Demands
rectly through multilateral projects, through other for-
eign-funded investment schemes, or by targeting the               The domestic production of basic environmental
demands of foreign-invested companies operating in             technology is not impossible for China. The following
China. Another option is to forgo the notion of exporting      is an assessment of the countryÕs more complex and
and establish a local presence in-country via a joint ven-     advanced needs, which can be roughly divided into four
ture (JV) or wholly foreign-owned enterprise (WFOE).           categories: inexpensive solutions, innovations and effi-
Such in-country operations can reasonably expect a             ciency, management skills and best practice, and main-
share of the market demand if they offer competitively         tenance and equipment servicing.



                                                                                         China Export Market Plan 1
   According to State Environmental Protection                      ing. Technology providers who can offer means to make
Administration (SEPA) statistics, over 70 percent of                significant environmental improvements at affordable
ChinaÕs pollution problems stem from industrial pollu-              prices find themselves warmly welcomed in China.
tion, which is primarily generated by seven industrial                 The potential market size, economies of scale, and
subsectors: non-metal mineral production; chemical                  the reduced costs of producing in ChinaÑthrough
production; pulp and paper production; textiles; ferrous            either a JV or WFOEÑare keys to commercial viabili-
smelting and processing; mining; and electricity pro-               ty for inexpensive solutions. A solid market analysis,
duction. Nonetheless, other sources such as municipal               effective and widespread marketing, and adept use of
waste and agricultural pollution factor heavily into the            the advantages of in-country production are all
equation, and the needs discussed below are generally               required. Enterprises composed, at least in part, by for-
applicable across the board.                                        eign technology providers are regarded as superior by
                                                                    many consumers in China.
Inexpensive Solutions
                                                                    Innovations and Efficiency
   Available finances for environmental protection fall
far short of what is needed to address ChinaÕs serious                 SEPA Minister Xie Zhenhua has indicated that
environmental degradation. One consistent response                  RMB 700 billion ($85 billion) will be needed to meet
from local government leaders and enterprises during                the environmental goals of the Tenth Five Year Plan
the research for this market plan was that needs are                and, according to CRAES, about 55 percent of that is
tremendous but money is scarce.                                     expected to be covered by enterprises themselves.
   Foreign enterprises looking to provide marketable                However, many business enterprises already view
solutions to ChinaÕs environmental problems need to                 environmental protection as a costly burden, and new
find innovative solutions and to develop affordable and             goals are met with increased disfavor. Therefore, a
cost-effective methodologies backed by creative financ-             market demand is developing for innovations and effi-


  Box 1. Industries Find Efficiency Through Green Business
  Sinopec Corporation and the Shanghai Baosteel Group (Baosteel), although not the only Chinese industries to do so, are
  finding that smart business simultaneously generates revenues and protects the environment. Both companies have
  strong internal health, safety, and environment (HSE) departments that establish and enforce standards that often exceed
  those of the state. Ultimately, their efforts pay off in revenues and offer positive public relations as they enter the
  international market.
  q   Since 1983, Sinopec has tripled its revenues while simultaneously reducing pollution. Between 1998 and 1999 indus-
      trial output increased 12 percent while major contaminants continued to decrease.
  q   In 1997, Sinopec spent RMB 90 million ($10.8 million) transforming 22 production units into Òclean production units.Ó
      The investment was recouped through reduced waste management and pollution treatment costs within one year of
      operation. Phase two, comprising another 20 units, is currently under evaluation, and phase three is already in progress.
  q   Investment in proactive safety measures by Sinopec and its subsidiary enterprises reached RMB 1.3 billion ($157
      million) over the past three years. In 1998 and 1999, they collectively suffered RMB 4 million ($483,000) and RMB 8
      million ($967,000), respectively, in asset damages due to accidents. Between 1984 and 1997, before HSE was initiat-
      ed, that number averaged 20 to 30 million RMB ($2.4 to 3.6 million) per year.
  q   Baosteel has been experimenting with recycling methodologies that use steel production waste products as a raw
      material in the construction of concrete roads. In 1998, the steel producer manufactured 10.16 million tons of steel
      and generated 5.5 million tons of waste. Some 4.7 million tons of that waste was re-used for road construction, gener-
      ating RMB 187 million ($22.5 million), and eliminating the need to manage that waste through other means.
  q   By standards in developed countries, BaosteelÕs achievement may be considered commonplace. But in the developing
      world, where waste management industries are far less developed, this type of waste is often simply dumped directly
      into the environment.
  q   Both Sinopec and Baosteel have indicated that their HSE programs were originally instigated by high-level government
      and enterprise leadership decrees. In time, the decrees have led to a sincere commitment on the part of both companies.




2 U.S. Department of Commerce, International Trade Administration
cient management techniques that allow an enterprise          expenditures and equipmentÑis poor operation and
to simultaneously protect the environment and save or         maintenance. This may be due to perceptions that
generate money, either through increasing efficiency          equipment maintenance and servicing is merely another
or reusing and recycling by-products.                         burdensome cost, or it may be due simply to a lack of
   Some of ChinaÕs major industries are already putting       awareness. Regardless, potentially strong market
such innovations to use and are finding that waste prod-      demand awaits investors who can successfully illustrate
ucts previously seen as useless and troublesome to dis-       to enterprises that relatively small expenditures on
pose of can be reused or recycled, and can generate           maintenance can result in long-term efficiencies and
further income. Other industries are developing more          revenues. Furthermore, technologies that require little
efficient and cleaner production methods and are reduc-       maintenance or are self-maintaining (which are heavily
ing pollution levies and cleanup costs so much that           marketed by Israeli industries in China) undoubtedly
expenditures formerly used to cover those costs can           have additional competitive advantages.
cover upgrade investment costs over a surprisingly short
period of time (see Box 1). As enterprises are increas-
ingly burdened with the responsibility of funding             The Issues
ChinaÕs environmental protectionÑand internalizing
their own environmental liabilitiesÑthey increasingly            The three primary environmental priorities in China
seek out means to make that responsibility affordable         are water quality, air quality, and waste management.
and profitable.                                               They will be the primary focus of environmental pro-
                                                              tection during the Tenth Five Year Plan and will there-
                                                              fore be the primary focus of this market survey.
Management Skills and Best Practices                          However, issues such as land degradation, ecological
                                                              and biodiversity preservation, and other standard envi-
   Although China is capable of manufacturing a great         ronmental concerns are getting attention and offer mar-
deal of the basic equipment for environmental protec-         ket potential.
tion, there remains a considerable gap in terms of man-          Each of these issues is introduced below. For market
agement and know-how when putting that technology             analysis and discussion of market potential by sector,
to use. There is a demand for consulting and manage-          see the appropriate corresponding chapters.
ment training that improves equipment performance
and overall environmental performance. Many industri-
alists and officials contacted during the research for this   Water
document expressed a need for training on sound man-
agement practices and operations.                                Statistics from 1991 to 1998 indicate improvements
   Additionally, there is a widespread lack of under-         in river water quality in some limited areas but illustrate
standing regarding best practices. In some cases, this is     an overall trend suggesting significant deterioration as a
due simply to the fact that enterprises are not aware of      whole. Forty percent of the countryÕs river water is
or do not seek out information regarding such practices.      ranked as poor by domestic standards. Additionally, an
In other cases, a perception perists that environmental       estimated 25 percent of all Chinese lakes are affected by
protection is necessarily costly and that therefore enter-    eutrophication, almost all of the coastal seas are moder-
prises must become financially sound before they can          ately to highly polluted, and it is now being said that lit-
become environmentally sound. In either case, it is           tle or no groundwater in the country remains
apparent that information on best practice needs to be        unpolluted.
widely disseminated, with simultaneous consideration             Water sources in 50 percent of the major cities and
of the innovations and efficiencies discussed above.          towns cannot meet drinking water standards. Ten per-
   Based on these findings, it appears that any initiatives   cent of urban and 80 percent of industrial wastewater
in this area require coordination between individual ven-     receives some treatment, but most of that treatment is
dors, industry associations, and the U.S. government.         inadequate. Most Chinese cities and towns lack munic-
                                                              ipal wastewater treatment facilities, and many towns do
                                                              not even have proper drainage systems.
Maintenance and Equipment Servicing                              Additionally, parts of the country are dramatically
                                                              short of water. In some areas, water availability is as
   Another breakdown in the industryÑone that heavi-          low as 355 cubic meters per head (the international def-
ly influences the efficiency of environmental protection      inition of water scarcity is 1,000 cubic meters per head).


                                                                                         China Export Market Plan 3
In 2000, Beijing endured what many called its worst          Waste
drought in decades.
   The vast majority of water in China is biologically          Over 200 of more than 650 cities surveyed in China
and chemically unsound, primarily as a result of             are surrounded by hills of waste. As of August 1999,
                                                             more than 6 billion tons of municipal refuse had accumu-
q   industrial wastewater discharge,                         lated and claimed 5.4 billion square feet of land in China.
q   municipal wastewater discharge, and                      Between 600 million and 750 million tons of industrial
q   non-point pollution (generated by agricultural           solid waste was generated in 1999, and statistics on the
    practices, livestock production, and so forth).          generation of hazardous waste vary from 5 to 30 million
                                                             tons annually. Hazardous wastes are often incinerated and
Air                                                          disposed of improperly and are frequently mixed with
                                                             non-hazardous waste in landfills and dumps.
    Of the three ambient air quality parameters consis-         There is much discussion now of sustainable devel-
tently monitored in ChinaÑsulfur dioxide (SO2), nitro-       opment through an integrated approach to waste man-
gen oxides, and total suspended particulatesÑonly            agement, including minimization of the production of
nitrogen oxides have increased concentration in medi-        waste materials and maximization of waste recycling
um and large Chinese cities in the past few years.           and reuse. Composting, incineration, and landfilling all
However, all three pollutants remain formidable con-         have roles in the management apparatus, each with its
cerns for ChinaÕs environment, and numerous other pol-       own host of pros and cons. Nonetheless, waste manage-
lutants remain unmonitored.                                  ment remains a subpriority for Chinese planners, as air
    Ambient air quality in many large urban areas has        and water concerns take center stage.
shown optimistic trends, but air quality in more than
                                                             q   Only 5 percent of household waste and 17 percent
500 major Chinese cities remains below World Health
                                                                 of industrial waste receive any treatment.
Organization (WHO) standards. Small cities have seen
                                                             q   An adequate hazardous waste management system
little or no improvement. Every Chinese city, large or
                                                                 does not yet exist.
small, faces serious total suspended particulate prob-
                                                             q   Market-based tools that would allow profitability
lems that pose significant threats to public health. The
                                                                 and thereby generate private investment have not
impact of acid rain has stabilized since the mid-1990s,
                                                                 been successfully established.
but its influence is still widespread and destructive,
affecting approximately 40 percent of ChinaÕs land-
mass. Indoor air pollution resulting from fuel combus-       Resource Management
tion is on the decline as briquettes and gaseous fuels
replace raw coal for cooking and space heating.                 About 20 percent of ChinaÕs agricultural land has
Nonetheless, it still poses a severe health risk, particu-   been lost to soil erosion and economic development
larly for poorer, rural populations.                         over the last decade. Desertification in northern China
    In keeping with the MontrŽal Protocol, China was         is estimated at 70,000 square kilometers and is increas-
able to freeze increases in the production and con-          ing by about 2,100 square kilometers per year.
sumption of ozone-depleting substances in 1999.              Salinization, reduction of pastureland, and loss of arable
However, the country still faces the task of completely      land are considerable, and the effects of widespread
phasing out such substances by 2010, a goal that may         deforestation are having a strong impact. Land degrada-
be difficult to achieve.                                     tion is arguably the most critical rural environmental
                                                             problem in China today.
q   Coal consumption is far and away the most domi-
    nant source of air pollution in China, spanning the
    gamut from large- and small-scale industrial and         Financing and Expenditures
    commercial sources to residential space- and water-
    heating operations.                                         China spent just under $10 billion on environmental
q   Motor vehicle emissions, in line with the increase       protection in 1999, reaching 1 percent of GDP for the
    of automobiles in most larger cities, are expected to    first time and accounting for an increase of 15 percent
    continue rising over at least the next 10 years.         over expenditures in 1998. Certain localities, such as
q   Non-combustion-related airborne particles resulting      Beijing, Shanghai, Xiamen, and Dalian, are claiming
    from construction and land degradation (e.g., deser-     expenditures in the range of 3 percent of local GDP.
    tification) are on the rise.                             There has been considerable discussion about raising


4 U.S. Department of Commerce, International Trade Administration
national expenditures over the next few years to the            Chapter 9 of this document provides further in-
neighborhood of 1.3 percent to 1.5 percent of GDP; how-      depth discussion of environmental protection financ-
ever, it is uncertain how soon that goal can be reached,     ing in China.
what it will include, and to what extent it would be
reflected in opportunities for various types of vendors.
   In a year 2000 report, CRAES indicated that 11.4          Visualizing the Market
percent of the $84 billion that will be spent during the
Tenth Five Year Plan is expected to come from the cen-
tral government, 34 percent is expected to come from         The Role of Policy and Enforcement
provincial and local governments, and 55 percent from
business enterprises themselves. A smaller amount ($4           Although demand in ChinaÕs environmental industry
billion) will be sought from foreign governments and         remains predominantly driven by financing through
international finance institutions. Whether or not busi-     official assistance programs or through enterprise inter-
ness enterprises will be able to cover their 55 percent of   ests in efficiency, policy pressures are becoming
the bill remains to be seen and is dependent upon loca-      increasingly influential. As ChinaÕs environmental poli-
tion. In fact, the goals of the Ninth Five Year Plan         cies become more comprehensive and detailed, market
placed a similar burden on enterprises, which was not        niches will become more defined. Investors looking for
fulfilled in most parts of the country.                      key market-entry points need to keep a close watch on
   Nonetheless, enterprises in and around cities like        the development of policy and, of equal importance, on
Beijing, Shanghai, Shenzhen, and other relatively afflu-     policy enforcement trends.
ent coastal areas are quite up to the task. Last year in        However, unlike some countries in which policy is
Beijing, over 55 percent of the spending on pollution        consistently and efficiently upheld through transparent
control came from enterprises. However, increasing           and equitable enforcement, Chinese environmental pol-
numbers of enterprises in much of ChinaÕs antiquated         icy can vary in its influence on market demand due to
rust bowl are in dire straits simply to pay out wages and    lapses in enforcement. Enforcement of policies is being
keep operations running, making the possibility of           stepped up, particularly in some of the more developed
upgrading pollution control a long-term goal for many        regions, and environmental policies are beginning to
of them.                                                     carry more weight.




                                                                                       China Export Market Plan 5
   There are currently several barriers to enforcement,          Water is the first natural resource to have been affect-
which include conflicts of interest between environ-          ed by market-based incentives, with tariffs rising sever-
mental and development goals, a breakdown in the rule         al times in 2000 alone. In December 2000, the Yellow
of law, lack of capacity on the part of local enforcement     River Water Commission raised irrigation water prices
agencies, and weaknesses in monitoring systems. The           by 100 percent, hoping to encourage water conserva-
prevalence of these and other barriers varies tremen-         tion. Household water tariffs, although still quite low,
dously from region to region and should be considered         are on the rise in some parts of the country, thereby
in determining where to locate an operation or where to       introducing the idea that consumers will have to begin
market products.
                                                              paying for the resources and services they use. As tariffs
   At the same time, however, it is not unheard of for
                                                              increase, consumers (particularly industries with high
local governments or other entities to respond to man-
dates and deadlines by paying cash to import required         water consumption rates) will likely start looking for
equipment such as compressed natural gas bus engines or       ways to reduce their costs.
air monitoring equipment. Such circumstances provide             Tariff liberalization trends are not altogether clear,
lucrative, albeit inconsistent, market opportunities, and,    but wastewater management is already being brought
much like the market demand created by multilateral and       into the fold, and solid waste management will probably
untied bilateral assistance programs, these circumstances     be affected in the near future. Additionally, there has
create a market environment quite unlike that in the U.S.     been some experimentation with emissions trading as a
   It is also advisable to monitor government policies        market tool to influence air pollution management, an
pertaining to priority projects and goals and to consider     idea that the government is examining, and that may
incentives and preferential policies to encourage invest-     instigate increasing demand for monitoring devices and
ment in that regard. However, before taking advantage         air pollution control technology. However, progress
of such policies, investors should critically review the      here is currently limited by the small number of partic-
circumstances. In some instances, whether the incen-          ipating enterprises and the lack of a free market for
tives and preferential treatment will make up for the dif-    services such as electricity, in which individual enter-
ficulties and costs that could be faced is questionable       prises are directly concerned with their own financial
(see Box 2).                                                  bottom lines.
   In sum, it is not so much the regulatory pressures as
the economic efficiencies and the availability of assis-
                                                              The WTO and the Environmental Industry
tance funding that currently create market opportunities
for foreign vendors. For now, most exporters will likely          The U.S.-China bilateral trade agreement that led up
find market demand by offering efficiency solutions that      to ChinaÕs accession to the World Trade Organization
either save money or generate revenues, or by exploiting      directly addressed the environmental sector only briefly
the opportunities generated by multilateral and untied        and vaguely. In particular, it addressed ChinaÕs commit-
bilateral assistance programs. (See Chapter 10 for further    ments to environmental services, which include sewage
discussion of positioning U.S. exporters in the market.)      services, solid waste disposal services, cleaning servic-
                                                              es for exhaust gases, noise abatement services, nature
                                                              and landscape protection services, and other environ-
Market-Based Incentives                                       mental protection services. However, environmental
   Market-based incentives, or the setting of resource        monitoring and pollution source inspection were not
and service tariffs (such as those for water and waste        included. Additionally, foreign service suppliers could
management) at a level that legitimately represents the       provide environmental consultation services via cross-
cost or value of those resources and services, is an idea     border delivery, without establishing a presence in
that is only just beginning to gain a foothold in China.      China; other service suppliers could operate in China
The Chinese government is reluctant to institute drastic      through joint venture operations. Because the exact
tariff changes for fear that rapidly increasing the costs     effects of the WTOÕs General Agreement on Trade in
of resources and services, which have thus far been cov-      Services (GATS) on the sector are in fact quite vague,
ered by the state, could stir social unrest. Yet the gov-     service providers are advised to consult a WTO special-
ernment appears well aware of the need to begin a             ist when considering the possibilities.
process of instituting these tools, and potential investors       In addition to its effects on trade in services, WTO
would do well to watch closely, as changes could be           accession is resulting in significant tariff reductions on
instituted rather quickly.                                    machinery and other imports. Overall, average tariffs



6 U.S. Department of Commerce, International Trade Administration
 Box 2. Investing in the West: Hype Versus Reality
 The 10 western provinces of Shaanxi, Sichuan, Guizhou, Yunnan, Gansu, Ningxia, Inner Mongolia, Qinghai, Xinjiang, and
 Tibet are the focus of ChinaÕs western development plan. The region covers 57 percent of the countryÕs landmass, is home to
 23 percent of the population, and claims over half of all the countryÕs verified natural resources. Yet 90 percent of the countryÕs
 poorest people live in the region, registering a per capita GDP of only 60 percent of the national average. Much of the region
 is mountainous, and agricultural land is of poor quality. Infrastructure and transportation capacities are lacking, as are educa-
 tion and a supply of qualified industrial managers and administrators. Direct investment is scant, the region is disconnected from
 international and even domestic markets, the environment is deteriorating, and the poverty-stricken population, without the
 proper resources and know-how, continues to stress the local ecosystem. Additionally, the potential for social unrest resulting
 from inequitable development across the country is something the government can no longer ignore.
     The development planÕs intended focuses are infrastructure development; the fostering of industries that maximize local
 comparative advantage; capacity building for science, technology, and education; a vastly improved investment climate; and
 environmental protection. Official support for the initiative has been overwhelming, with many emphasizing that development
 in the region is long overdue. Promises of increased direct investment, preferential tax rates, eased restrictions on foreign invest-
 ment, simple solutions to complicated foreign exchange issues, and other incentives to draw both foreign and domestic invest-
 ment to the region have been made.
     However, beneath the rhetoric run concerns that foreign investors must consider:
 q   The plan is extremely long-term, with an anticipated timeline of 20 to 30 years or more.
 q   The majority of proposed projects are large-scale, long-term infrastructure development projects, which are notorious in
     China. A Ministry of Finance survey of recently completed large-scale infrastructure projects found that, on average, such
     projects went 85 percent over budget and were 23 months behind schedule.
 q   The region lacks a secure legal climate and high-quality human resources. Local officials blindly gather and promote proj-
     ects with little regard for long-term, efficient planning. Such circumstances traditionally breed corruption and shortcuts in
     China, resulting in misallocated funds and final products of poor quality.
 q   Official media reports indicate that total investment in the region increased 17.9 percent in 2000, constituting billions of
     renminbi. However, only a percentage of this money has actually been transferred or invested; the remainder is accounted
     for as signed proposals or contracts. Whether these funds will materialize as actual investment remains to be seen.
 q   Many projects are billed as environmental or ecological projects, in keeping with the planÕs environmental focus.
     However, prospects for environmental protection are not guaranteed. Although a proclaimed propensity toward environ-
     mental protection may offer opportunities for related industries, the phrase environmental protection is not well under-
     stood. Barriers and resistance to true environmental protection measures still exist.
 q   In some estimations, the development plan is more a political campaign for social stability than an economically viable
     campaign for growth, as central planners continue to realize the need to narrow ChinaÕs development gap.
    Many foreign investors have investigated business prospects in ChinaÕs western regions, but as a result of some or all of the
 above factors, most have left empty handed. The prognosis is not that ChinaÕs west will never yield quality opportunities, but
 investors should consider how much progressive change is required before venturing in.


will be reduced to 10 percent within five to seven                    WTO accession is generating significant, indirect
years of accession. For specific details on the agree-                impacts on the industry. Many of the changes that
ment and tariff schedules or to inquire about tariff                  benefit industries across the board, such as the disman-
rates for a particular item, contact the U.S. Department              tling of non-tariff barriers, the discouraging of import
of Commerce for a copy of the agreement, or obtain a                  substitution policies, and (ideally) increased trans-
copy of the Regulations on Import and Export Tariffs                  parency, benefit the environmental industry.
of the PeopleÕs Republic of China, available for RMB                     Agreements on distribution services are also benefit-
240 from the Publishing House of the General                          ing environmental industry players, and agreements on
Customs Administration, No. 6 Jianguomennei                           commission agent services, wholesaling, retailing, and
Avenue, Beijing 100730, China, +86 (10) 6519-5616,                    franchising may all be central to the plans of exporters
6519-5615.                                                            developing a presence in the country. Foreign service
   Although the agreement contains very little that is                suppliers are now allowed to provide all Òsubordinate
directly associated with the environmental sector,                    services,Ó including after-sales services. Once again,


                                                                                                    China Export Market Plan 7
details in regard to these agreements are complex, and a               sion, and the opportunities they may offer to environ-
WTO specialist should be consulted by service                          mental exporters:
providers that are considering the possibilities.                      q   Textiles. ChinaÕs production of processed cotton
   In consideration of the role state-owned enterprises
                                                                           products, including the dyeing of such products, is
play in ChinaÕs economy, governmental influence on
                                                                           rising, resulting in increased industrial water con-
the decisions of SOEs regarding the purchase and sale
                                                                           sumption and wastewater generation. Water conser-
of goods and services has been addressed by the bilat-
                                                                           vation, recycling and reuse methodologies, and
eral agreement as well. Under the agreement, decisions
                                                                           wastewater treatment are important.
by state-owned and state-invested enterprises are based
on commercial considerations, and the enterprises of                   q   Livestock Production. As ChinaÕs agricultural
other WTO members have equal opportunity to com-                           product markets (particularly non-rice grain product
pete for contracts with such enterprises. Although China                   markets) open to less expensive international com-
has chosen not to sign the Government Procurement                          petitors, many farmers are switching production
Agreement, all procurements for commercial and non-                        focus. Livestock production is increasing, which is
governmental purposes by state-owned and state-                            causing, among other things, an increase in live-
invested enterprises are considered non-governmental                       stock wastes. If improperly handled, such wastes
procurement. Additionally, the receipt of benefits,                        will pose serious water pollution threats. Water
investment approvals, and so forth, are no longer con-                     pollution control and efficient waste management
tingent upon technology transfers encouraged or                            techniques with potential for reusing such wastes
imposed by the government. Under the bilateral agree-                      are important.
ment, technology transfers and similar issues are decid-               q   Increased Production of Leather and Fur
ed upon solely by the involved parties, without                            Products. Increased livestock production is benefit-
interference by the state.                                                 ing livestock producers by increasing income, but it
   Yet another significant and influential aspect of WTO                   is also causing increased water consumption and
entry is the effect it is having on other Chinese indus-                   water pollution.
tries, which in turn affects market opportunities for
environmental technology providers. According to the                       Foreign technology providers have reported diffi-
World Bank, as WTO accession slowly opens Chinese                          culties in managing the wastes of some leather
markets, China is shifting its industrial base to indus-                   treatment facilities in China, as leather treatment
tries in which it benefits from comparative advantages                     processes have a great deal of impact and some
(labor-intensive sectors as opposed to land-intensive                      Chinese facilities are primitive. Foreign technology
sectors). Following are some of the industries that                        providers have indicated that they lack the technolo-
the World Bank expects to be affected by WTO acces-                        gy or know-how to manage pollution in such facili-


 Box 3. Town and Village Industrial Enterprise: The Little Big Polluters
 Town and village industrial enterprises (TVIEs), which are economically significant small private and collectively owned enter-
 prises, are slipping through the enforcement web of ChinaÕs environmental protection. Very few, if any, of these facilities are
 up to state standards.
     Unlike SOEs, TVIEs are weakly linked to the government, and pressures upon them to meet environmental standards are
 quite low. This may be a result of practical and logistical problems associated with enforcement of protection policies, or it may
 reflect the significant economic performance of the sector, which some are reluctant to restrain.
     Pollution statistics relevant to TVIEs are far from complete. Nevertheless, there are strong indications that TVIE pollution
 is a significant contributor to total pollution discharges and that emissions target rates for the sector are in fact increasing. Year
 2000 chemical oxygen demand targets for TVIEs increased 36 percent over 1995, while those targets remained generally
 unchanged for SOEs. The Ninth Five Year Plan target levels for TVIE SO2 emissions were nearly 50 percent higher than the
 actual 1995 levels, while the target levels for SOEs were reduced.
     The United Nations Industrial Development Organization (UNIDO), with funding from the Global Environmental Facility,
 has initiated a program to bring energy-efficient technologies to TVIEs by strengthening capacity to govern the clean develop-
 ment of TVIEs and by stimulating demand for clean technologies through regulatory and market reforms, as well as the devel-
 opment of financing mechanisms. Exporters that offer goods potentially of benefit to TVIEs, but that have avoided the market
 due to TVIE financial constraints or market instability resulting from sporadic government cleanup campaigns, may find the
 UNIDO program instrumental in facilitating market entry.




8 U.S. Department of Commerce, International Trade Administration
    ties because these types of facilities were               structure construction, renovation and redevelopment of
    transferred out of their countries before control         existing enterprises, and new projects (see Figure 1.2).
    technology was developed.                                    Investment in urban infrastructure has seen both the
                                                              most overall growth and the largest increase in percent-
    Water conservation methodologies and water pollu-
                                                              age of total investment. Investment in this sector was
    tion control are important, as are cleaner leather pro-
                                                              $1.8 billion during the Seventh Five Year Plan and
    duction techniques.
                                                              reached $15.6 billion in the first four years of the Ninth
q   Increased Fruit and Vegetable Production and              Five Year Plan. In 1999, investment in this sector
    Processing. As a result of decreased grain produc-        accounted for 58 percent of TIPC, while it accounted
    tion, there is an increase in the production of fruits    for only about one-third of TIPC during the seventh
    and vegetables, causing an aggregate increase in the      Five Year Plan.
    use of water and pesticides. Water conservation              Investment in renovation and redevelopment of
    methodologies and irrigation techniques particular        existing enterprises has remained relatively constant
    to fruit and vegetable production, improved pesti-        since the seventh Five Year Plan but has declined as an
    cides, and the dissemination of sustainable agricul-      overall percentage of TIPC. Investment in this sector as
    ture and non-point pollution control methodologies        a proportion of TIPC fell from 41.2 percent during the
    are important.                                            seventh Five Year Plan to 16.9 percent and 18.5 percent,
q   Restructuring of Forestry and of Pulp and Paper           respectively, in 1998 and 1999.
    Production. Massive restructuring in the forestry            Investment in new projects has increased consistent-
    sector is phasing out small-scale pulp and paper          ly from year to year but has fluctuated in terms of TIPC
    production facilities. The development of new and         percentage. It accounted for 26.6 percent of TIPC dur-
    more efficient production facilities offers opportuni-    ing the seventh Five Year Plan, rose by less than 1.5 per-
    ties for investment in cleaner production, water          cent in the eighth Five Year Plan, dipped to 19.7 percent
    conservation, and water pollution control. Further-       in 1998, and rose to 23.3 percent in 1999. Overall, the
    more, researchers at the World Bank have indicated        share of investment in new projects has declined slight-
    that the paper industry, with its relatively high         ly since the seventh Five Year Plan.
    chemical-oxygen-demand (COD) discharges and
    low abatement costs, may be the most cost-effective       Understanding China
    target for reducing organic water pollution.
                                                                 Definitions of environmental protection vary from
   Generally speaking, WTO accession is increasing
                                                              place to place, and China is no exception. In fact,
competition, spurring local industries to improve tech-
                                                              because it lists initiatives such as urban beautification
nology, management, and general know-how.
                                                              (i.e., fixing sidewalks and painting buildings) as envi-
Efficiencies that both affect and are affected by envi-
                                                              ronmental protection, ChinaÕs definition may be one
ronmental performance are increasingly important, par-
                                                              of the broader examples known in the world.
ticularly as awareness of eco-efficiency principles
                                                              Therefore, it is important for investors to keep defini-
becomes more widespread. Additionally, increased
                                                              tion variances in mind, as they may positively or nega-
scrutiny by international communities with an eye on
                                                              tively affect things such as tax brackets, incentives, and
environmental protection is strengthening Chinese
                                                              market demand.
industriesÕ commitment to environmental protection
                                                                 On a similar note, it is necessary for investors to
and increasing their demand for environmental tech-
                                                              understand the Chinese market and adapt themselves
nologies as they seek to become competitive players in
                                                              and their products to it rather than try to impose a
international markets.
                                                              change to create a more favorable investment climate
   A number of WTO-associated Web sites are listed
                                                              for themselves. The Chinese environmental protection
among the resources for further reading at the end of
                                                              market is increasingly open to the technology, skills,
this chapter.
                                                              and know-how of the foreign sector, but tolerance is
                                                              limited for investors who insist on doing things their
Structural Trends of Pollution Control Investment             way, without considering the situation, needs, and
                                                              desires of the Chinese. Thus, techniques and technolo-
  The structure of total investment in pollution control      gies that have proven successful elsewhere may not be
(TIPC) has changed over time in regard to the three           appropriate in China. Investors should keep this in mind
main categories receiving that investment: urban infra-       when establishing market-entry strategies and should


                                                                                        China Export Market Plan 9
work hard to adapt themselves to the particular             that reason it is critical to offer, whenever possible,
demands of the country.                                     technologies and innovations that can turn environmen-
   It must also be noted that the Chinese do not take       tal protection into a profitable endeavor. In marketing
kindly to being used as a testing ground for unproven       technologies or consulting on management methodolo-
environmental schemes, particularly when they are           gies, it is vitally important to clearly and convincingly
expected to provide the funding. If newly innovated,        stress efficiency, recycling, and the fact that environ-
untested, but relatively promising technology or man-       mental protection need not incur long-term costs but
agement schemes are presented to China, complete with       can in fact be profitable if instituted properly.
funding, there is some possibility that the Chinese will       Many upgrades that could initiate efficiency and
allow a pilot project to be developed in the country.       profitability require heavy doses of capital investment.
However, schemes that are considered suspect or             Much of ChinaÕs industrial sector lacks that capital, and
require financing from the Chinese government will not      many of the businesses propped up by the SOE sup-
be looked upon favorably.                                   porting apparatus have barely enough to get by, never
   Finally, many Chinese industries still view environ-     mind invest. Thus, it is necessary to consider these fac-
mental protection as a significant financial burden. With   tors at all points of strategy development and to keep in
policy changes and stepped-up enforcement poised to         mind that some enterprises, in some regions, are far
increase that burden, many industries may see environ-      more likely to accept and benefit from eco-efficiency
mental protection as more of a threat than a boon. For      strategies than others.




10 U.S. Department of Commerce, International Trade Administration
 Box 4. Environment and Social Stability Face Off Across the Country
 As 2000 drew to a close, goals set by the Ninth Five Year Plan to bring all polluting industries in the country into compli-
 ance with state pollution standards by yearÕs end had companies scrambling to clean up and governments closing
 down operations.
    The SEPA and other related departments intensified inspection processes during the period; proud claims of high compli-
 ance rates were heard, as were troubling stories of closing enterprises and distraught laborers. The tricky balancing act of shut-
 ting down heavy industrial polluters and preventing unemployment from skyrocketing further out of control was underway.
    Enterprise closure is a stiff threat used to pressure polluters into compliance, and under new air and water laws, it will like-
 ly continue to play a strong role. But some enterprises, particularly the antiquated industrial behemoths of ChinaÕs fabled Òrust
 belt,Ó simply cannot cover the costs of upgrading and protecting. Closures, on the other hand, bring the burden of unemploy-
 ment and potential social unrest. As an insurance policy, most closures have taken place in dispersed smaller enterprises rather
 than in large operations.
    Meanwhile, despite initial successes in pollution reduction among those industries still in operation, inconsistent monitor-
 ing and enforcement strategies may, in the long term, undermine what has been accomplished. Intermittent and poorly execut-
 ed inspections in many parts of the country may not be sufficient to prevent enterprises from lapsing back into old habits after
 the pressures of the campaign subside.
    The economically more dynamic eastern and southern regions of the country have been most successful in bringing about
 compliance that is likely to hold, particularly through improved production processes and the development of cleaner tech-
 nologies. Those regions heavily burdened with decrepit industrial facilities, however, are left balancing concerns of environ-
 ment and social stability.

Selected References and Web Sites                                    Far Eastern Economic Review:
                                                                     www.feer.com
References
                                                                     National Bureau of Asian Research.
Policy and Regulation Department, General Customs                    NBR Publications:
Administration. Customs Import and Export Tariffs of                 www.nbr.org/publications
the PeopleÕs Republic of China. Beijing: Publishing
House of Economic Management, 2001. (Available for                   South China Morning Post:
RMB 220 from the Publishing House of Economic                        www.scmp.com
Management, tel. +86 (10) 6519-4173.)
                                                                     U.S.-China Business Council:
  State Environmental Protection Administration.                     www.uschina.org
China Environment Yearbook. Beijing: China
Environment Yearbook Publishing House, 1999.                         U.S.-China Business Council: China and the WTO:
                                                                     www.uschina.org/public/wto
   Wang Jinnan, Wu Shunze and Luo Hong. Integrating
Economic Development and Environmental Protection                    U.S. Department of Commerce:
in China During the Tenth Five Year Plan Period.                     www.doc.com, www.usatrade.gov
CRAES: November 2000.                                                U.S. Department of Commerce,
  U.S. and Foreign Commercial Service, Beijing.                      International Trade Administration,
Environmental Project Approval and Financing in                      Office of Environmental Technologies Industries:
China: A Perspective for U.S. Companies. Beijing: U.S.               www.environment.ita.doc.gov
and Foreign Commercial Service, November 2000.                       U.S. Embassy, Beijing:
                                                                     www.usembassy-china.org.cn
Web Sites
                                                                     U.S. Embassy, Beijing,
BuyUSA:                                                              Country Commercial Guide: China:
www.buyusa.com                                                       www.usatrade.gov

Central Intelligence Agency:                                         The World Bank Group in China Web site:
www.cia.gov/cia/di/products/china_economy                            www.worldbank.org.cn/English/home.asp

ChinaOnline:
www.chinaonline.com


                                                                                                 China Export Market Plan 11
                                                   Chapter 2
                                      Economic Overview


ChinaÕs economy has seen consistent growth since Deng        rising unemployment, and eventually deflation (see
XiaopingÕs policy of economic reform and opening             Figure 2.1). In early 2001, the economy began to show
began in 1978. For much of the 1980s and early 1990s,        preliminary signs of picking up, with GDP growth near-
the nation enjoyed double-digit rates of GDP growth.         ing 8 percent (the official target for 2000 was 7 percent),
That growth began to slow, however, in 1992, and             consumer prices slowly rising, and exports gaining
remained in decline as a result of inflation, fallout from   strength as the rest of Asia began shedding the influence
the Asian financial crises, sluggish domestic demand,        of the Asian financial crises.




12 U.S. Department of Commerce, International Trade Administration
   Economic predictions for the coming years range           cial viability. According to the PeopleÕs Bank of China,
from moderate to cautiously optimistic. Most predic-         approximately 20 percent of outstanding loans in the
tions call for annual GDP growth of 7-plus percent over      biggest state-owned banks are non-performing, 75 per-
the next two to three years. Recent increases in domes-      cent of which can likely be recovered. Outsider esti-
tic demand are viewed as potentially sustainable and         mates of non-performing loans vary (25Ð40 percent
may be a sign that the countryÕs deflationary spiral has     non-performing, with only about 15 percent recover-
come to an end. Consumer spending on such substantial        able, is not unreasonable), but the widespread consen-
items as residential property rose an estimated 40 per-      sus is that the PeopleÕs Bank of ChinaÕs estimate is
cent in 2000 and will likely continue to increase.           significantly understated. In sum, non-performing loans
Nonetheless, domestic demand remains sluggish and            are estimated at $180Ð360 billion, or 18Ð36 percent of
continues to present a macroeconomic concern.                1999Õs GDP.
   The most promising indicator that GDP growth will            Recently, the central government instituted a debt-to-
be sustained at over 7 percent is the current fiscal poli-   equity swap system by which banks were relieved of a
cy. Much of ChinaÕs growth over the past several years       percentage of their bad loans. Asset management com-
has been heavily influenced by large amounts of gov-         panies have been established to acquire percentages of
ernment spending, and it is clear that this spending will    selected SOEsÕ debts and turn them into equity. These
continue. Since 1998, the country has issued RMB 360         companies, which become part owners of any SOEs for
billion ($43.5 billion) in government bonds to fund fis-     whom they have acquired debt, are expected to restruc-
cal-stimulus spending on infrastructure development. A       ture the enterprises, and make them profitable. Thus far,
probability model developed by the State Information         the scheme has done little more than relieve the banks
Center indicates that GDP growth for the year 1999           and some SOEs of a degree of the strain resulting from
would have been 4.3 percent instead of 7.0 percent if        the debt burden. Significant changes in management
the bonds had not been issued and the funds allocated as     policy are necessary if reduced burdens are to improve
they were.                                                   financial management (on the part of the banks) as well
   Bonds funded 46 percent of government spending in         as enterprise management, production efficiency, and
1998, whereas in 1993 they accounted for 3.8 percent of      profitability (on the part of the SOEs). So far there has
expenditure. Approximately 15 percent of 2001 govern-        been little sign of such changes.
ment expenditure was earmarked for interest payments.           Significant downsizing is also underway in the state-
The countryÕs debt burden is currently considered sus-       owned sector. Under a strategy of Ògrasping the large
tainable; however, it is unclear how long this deficit       and letting go of the small,Ó the government is working
spending will continue.                                      to turn some of the larger SOEs around, hoping they will
                                                             develop into self-sufficient, profit-oriented, giant inter-
                                                             national corporations. At the same time, many of the
The Financial Burden                                         smaller SOEs have been left to the devices of local gov-
                                                             ernments, resulting in significant closures and layoffs.
   The assessment of ChinaÕs finance and debt structure         SOE reform and low profitability in the sector have
is somewhat different, however, if financial sector          led to the functional disintegration of the SOE-based
reforms, SOE reforms, pension reforms, and agricultur-       social security system, resulting in a growing implicit
al reforms are taken into account. The World Bank sin-       pension debt. Loss-making SOEs are no longer able to
gles out these four sector reforms as the major financial    fund workersÕ housing, health care, education, and pen-
burdens on ChinaÕs economy, each of which requires           sions, all of which are responsibilities that traditionally
creative macroeconomic management on the part of             rested with SOEs and work units. Some of these funds,
policy-makers. According to the World Bank, the one          which are estimated at $240 billion, will need to mate-
temporary reprieve is ChinaÕs exceptionally large stock-     rialize. The same holds true for money needed to sup-
pile of personal savings, which equals around 40 per-        port the countryÕs rapidly aging population.
cent of GDP. WTO entry is gradually opening the                 Finally, the agricultural sector, historically the coun-
domestic banking sector up to foreign banks, which           tryÕs primary economic sector, is now viewed as the
may draw some assets away from the state.                    economyÕs weak link. FarmersÕ incomes have risen
   ChinaÕs banks are burdened with tremendous                slowly in comparison with incomes in other sectors and
amounts of non-performing loans paid out to SOEs that        accession to the WTO may have negative effects that
are based more on political interests than on commer-        lead to even poorer overall performance.




                                                                                      China Export Market Plan 13
Structural Changes                                               Approximately three-quarters of imports receive
                                                                 very low tariffs or none at all.
   It is the assessment of the World Bank that China is
undergoing four types of structural change. Any one of
these changes could result in a significant reallocation     Other Factors of Influence
of resources or income distribution, affecting the econ-
omy as a whole. However, all four changes are occur-            Other factors that influence the overall performance
ring simultaneously:                                         of the nationÕs economy should also be recognized:
q   A shift from a command economy to a market econ-         q   Despite the fact that most of the countryÕs massive
    omy, which began after ChinaÕs opening up in 1978            SOEs are loss making, they are the beneficiaries of
    and is marked by progressively deregulated prices            most commercial lending and capital account
    and resource allocation decisions as well as                 investment. Large amounts of financial resources
    decreased state activity in the economy. The shares          are being used to keep SOEs afloat. In some parts
    of retail, agricultural, and capital/industrial goods        of the country, much of those resources are used to
    sold at prices fixed by the state fell from 97 percent       provide employees with only the most basic of
    to 5 percent, 94 percent to 23 percent, and 100 per-         necessities, such as housing and food, leaving little
    cent to 12 percent, respectively, between 1978 and           money for investments in production upgrades and
    1999; the public sectorÕs share of total fixed invest-       the development of efficient production methods.
    ment fell from 82 percent in 1980 to 53 percent in           Many SOEs are likely to remain unviable for the
    1999; and direct investment funding from the gov-            foreseeable future.
    ernment budget fell from 30 percent to 6 percent         q   Non-state firms account for over two-thirds of the
    over the same period of time.                                nationÕs industrial output and an estimated one-
q   A shift from an agricultural-based economy to an             quarter to one-half of GDP, yet access to both bank
    economy predominantly based on manufacturing                 loans and public equity markets is dominated by
    and services. Between 1980 and 1999, agricultureÕs           SOEs. Even under the best of circumstances over 80
    percentage of total output declined from 30 percent          percent of private-firm financing is self-generated.
    to 18 percent, and the share of the work force in the        The government is aware of the important role that
    agricultural sector fell from 69 percent to 47 per-          private enterprises will play in the future develop-
    cent. During the 1990s, jobs in the agricultural sec-        ment of the countryÕs economy, and institutional
    tor decreased by about 3.4 million per year, while           changes, although likely to be slow, are anticipated.
    jobs in the services sector increased by 8 million       q   A tremendous development gap exists between the
    per year.                                                    coastal regions and the western part of the country,
q   A demographic profile shift from high fertility and          as well as within isolated pockets of the east.
    low longevity to low fertility and high longevity.       q   Per capita GDP in Guizhou Province, one of the
    The population growth rate has slowed from 1.9               countryÕs poorest, is only 8 percent of that in
    percent per year in 1980 to 0.88 percent in 1999.            Shanghai, the countryÕs richest city. With 16 million
    Life expectancy rose from 67 years of age in 1980            people, Shanghai accounts for little more than 1
    to 69.5 years of age in 1997. The populationÕs share         percent of the countryÕs population but accounts for
    of children (14 years of age and below) has fallen           5 percent of its industrial output.
    from 35.5 percent in 1980 to an estimated 24.9 per-      q   Guangdong Province accounts for 10 percent of
    cent in 2000, while the aged population (65 years of         national GDP and 40 percent of foreign trade, yet it
    age and above) rose from 4.7 percent in 1980 to an           comprises only 5.8 percent of the countryÕs popula-
    estimated 6.7 percent in 2000.                               tion. The Pearl River Delta area, which accounts for
q   A shift from a relatively closed to a relatively open        25 percent of GuangdongÕs provincial population,
    economy. External trade in China is now conducted            receives 80 percent of the provinceÕs foreign direct
    through over 200,000 direct import-export enterpris-         investment and accounts for 90 percent of its exports.
    es, as opposed to the 10Ð16 state trading firms that     q   The western region of China, which is the focus of
    once controlled all import and export activities.            the newly unveiled ÒGreat Western Development
    Non-tariff trade barriers have fallen to an estimated        Plan,Ó accounts for 57 percent of the countryÕs land-
    tariff-equivalent level of 9.3 percent, affecting 33         mass, 23 percent of the population, and more than
    percent of imports. The average weighted tariff rate         half of all verified natural resources, yet it contains
    for the economy is an estimated 18 percent.                  90 percent of the countryÕs poorest people, with per



14 U.S. Department of Commerce, International Trade Administration
    capita GDP in the region registering at only 60 per-     Economic Development and
    cent of the national average.                            Environmental Investment
q   The country remains rife with corruption and
    unscrupulous enterprise management. News cover-          Pollution Control Investment
    age of disciplinary action taken against corrupt offi-
    cials is seen almost daily in the local media. Such         According to CRAES, the leading SEPA think tank,
    corruption affects the national economy and local        national economic development and environmental
    economies and creates tremendous sticking points         investment in China have been closely related over the
    for both foreign and domestic investors. Random          past 15 years. As GDP grew, so did rates of total invest-
    audits of 159 companies by the Ministry of Finance       ment in pollution control. In fact, TIPCÕs percentage of
    in 1999 revealed that 157 companies had falsely          total GDP increased even as the GDP growth rate
    reported their profit figures, 147 had falsified their   slowed (see Figure 2.2). Investment during the eighth
    asset accounts, and 155 had falsified their equity       Five Year Plan was 2.7 times that in the seventh Five
    accounts. Each category was both over- and under-        Year Plan, and Ninth Five Year Plan expenditure
    stated to cumulative amounts of $177 million to          exceeded that of the eighth. Environmental invest-
    $299 million. Some enterprises kept duplicate            mentÕs average percentage of GDP rose from 0.6 per-
    records and provided different accounting                cent in the seventh Five Year Plan to 0.77 percent in the
    statements to different authorities.                     eighth. By the end of the Ninth Five Year Plan, invest-
                                                             ment reached 1 percent of GDP.




                                                                                     China Export Market Plan 15
   TIPC as a percentage of total national investment in   vary as much as 15 percent depending on the sources
fixed assets also showed overall growth. TIPC aver-       of data and methods of calculation.
aged 2.41 percent of total national investment in fixed
assets during the seventh Five Year Plan, peaked in       Macroeconomic Perceptions and Finance Tools
1991 at 3.09 percent, dipped in the mid-1990s, and
trended upward after 1995 to reach 2.76 percent in            The steady development of ChinaÕs economy has
1999 (see Figure 2.3).                                    increased investor confidence in macroeconomic stabili-
   Remarks attributed to Xie Zhenhua, the minister of     ty, opening up potential for the use of financial tools such
SEPA, indicate that environmental investment              as stocks and bonds. Although both stock and bond mar-
reached 1 percent of GDP in 2000, and is expected to      kets in China have a considerable way to go before they
reach 1.3Ð1.5 percent over the next five years.           can be considered comprehensively developed, they are
Official forecasts are calling for RMB 700 billion        facilitating some degree of environmental investment.
($84.6 billion) in environmental investment over the          State Development and Planning Commission
course of the Tenth Five Year Plan. In some major         (SDPC) reports indicate that a significant portion of the
coastal cities such as Beijing, Shanghai, Dalian,         $43.5 billion in government bonds used for fiscal-stim-
Qingdao, and Xiamen, environmental spending has           ulus spending on infrastructure development since 1998
reached as high as 3 percent of GDP. However, it          has been directed toward environmental protection and
should be noted that the definition of environmental      the management of natural resources. The investments
protection is quite broad and inconsistent in China. It   have reportedly increased daily wastewater treatment
may include urban beautification and other activities     capacity by more than 8 million tons and solid waste
not normally categorized as environmental protection      treatment capacity by 31,000 tons. Centralized heating,
elsewhere. Thus, figures for annual environmental         flood control, forest management, and capacities to
spending cited in various Chinese publications may        extract and use natural gas also reportedly benefited.




3.5%


3.0%


2.5%


2.0%


1.5%


1.0%


0.5%


0.0%




16 U.S. Department of Commerce, International Trade Administration
   Over 30 environmentally related companies are cur-        their state-owned counterparts, have a stronger vested
rently listed on ChinaÕs stock exchange, with reported-      interest in efficiency than even the most successful and
ly high degrees of success. Stock markets in China           personally responsible SOEs. The non-state sector is on
have become a tool for gaining quick infusions of            the rise and is expected to grow significantly in the near
financing from small-scale Chinese investors, particu-       term. Financial and investment tools remain out of
larly personal investors. However, the relatively under-     reach for most private enterprises, making efficiency
developed and somewhat dubious nature of the                 that much more important. (For a detailed analysis of
countryÕs stock markets prevents them from being             ChinaÕs private sector, see the International Finance
more readily exploited for the purposes of environ-          CorporationÕs ÒChinaÕs Emerging Private Enterprises,Ó
mental financing. (ChinaÕs stock markets are discussed       available online at www.ifc.org/publications.)
further later in this chapter.)
   There is discussion within government think tanks         Environmental Prospects for the
regarding the development of bond markets, publicly          State-Owned Sector
traded investment funds, and other financial tools to be
focused on environmental sector investment. The effec-          Unlike those SOEs with potential for commercial
tive use of these tools would greatly reduce the financial   success, discussed in the previous section, many of the
burden currently shouldered by government budgets.           countryÕs SOEs are caught in a downward spiral of poor
However, a more developed and better regulated finan-        viability and tremendous burden. Efforts to downsize
cial sector is required before such tools can reasonably     and close large numbers of those SOEs that show little
be expected to perform in this capacity. Experts have        or no hope of reform and future profitability have been
suggested that the necessary climate for such tools will     underway for some time; however, mass layoffs and
not develop during the Tenth Five Year Plan, and per-        severance of numerous benefits such as health care and
haps not even during the 11th. (See Chapter 9 for a dis-     housing carry significant social impact. Thus, smaller
cussion of finance programs and resources.)                  SOEs are being dissolved while many of the larger ones
                                                             are being kept afloat not so much in hopes of turning
Institutional Changes, Decision-Making,                      them around but simply to prevent mass numbers of
and Efficiency                                               people from becoming disenfranchised.
                                                                Many SOEs, particularly those in ChinaÕs northeast-
   ChinaÕs gradual shift from a command and control          ern Òrust belt,Ó rank as some of ChinaÕs worst polluters.
economy to a market economy has caused a slow                Some facilities in the area date as far back as the
decentralization of decision-making power. The respon-       Japanese occupation of the 1930s and 1940s, and have
sibilities of different stakeholders within the financial    efficiency capacities to match. Appropriate upgrades
decision-making process (such as banks, local govern-        could benefit both the efficiency and the environmental
ments, and enterprise managers) are being increasingly       performance of these enterprises significantly, and
clarified. Liability for performance outcome, and there-     some degree of return would likely be seen relatively
fore financial and enterprise efficiency, is on the rise.    quickly. However, the required initial capital is
   Particularly among such high-profile and economi-         extremely difficult to secure, and many such enterpris-
cally important SOEs as Sinopec and Baosteel (see Box        es would face considerable difficulties in paying back
1), as well as among SOEs in some of the more eco-           loans from both public funds and commercial lenders
nomically and environmentally developed regions of the       even if they were to begin seeing improved financial
country, industrial efficiency and financial bottom lines    outcomes as a result of increased efficiency.
are becoming more and more important. Reportedly,
industries with progressively oriented management and
the commercial potential for successful reform are being     Institutional Changes and Financial
given increased flexibility to make investment and man-      Liberalizations
agement decisions with decreased interference by the
central government. Efforts to increase operational effi-       Changes in ChinaÕs economic and financial institu-
ciency through cleaner production, improved manage-          tions are occurring rapidly and may have a tremendous
ment, and improved equipment maintenance are already         impact upon the future development of the economy.
being seen and are expected to increase.                     No matter how committed the government is to envi-
   Privately-owned enterprises, which by their very          ronmental protection in China, there is little hope for
nature are more entrepreneurial and competitive than         success without the economic capacity to address the



                                                                                      China Export Market Plan 17
issues. What follows is a discussion of several influen-     and regulations are available to the public, and drafts of
tial factors in ChinaÕs macroeconomy, the continued          certain laws are available for review and consultation
development of which will affect both environmental          in the formulation phase. Generally, this is in keeping
protection and the environmental industry.                   with the commitments China made leading up to WTO
                                                             accession. WTO entry is catalyzing transparency of
WTO Accession, Trade, and Investment                         laws and regulations as well as the development of a
                                                             rules-based system, thus ensuring some level of pre-
   ChinaÕs central planners are acutely aware of the         dictability and gradually improving the climate for for-
effects WTO accession is having on the domestic econ-        eign trade and investment.
omy, the pressures placed on Chinese enterprises, and           Other issues of regulatory transparency could remain
thus the need to reform certain regulatory and institu-      troublesome in China for some time to come, though.
tional systems to increase efficiency in economic            As a rule, the country keeps information on what it clas-
development. Already a number of changes are being           sifies as state secrets and matters of national security
seen, and they will increase and intensify in the coming     under tight wraps. The law defines these in a vague and
years, partially as a result of regulations imposed upon     broad manner. Foreign investors in environmental
the country by the WTO itself and partially as a result      industries have reported serious problems with such
of the pressures imposed upon domestic enterprises by        issues in the past. Initiatives have been stalled and in
the presence of highly competitive foreign enterprises       some cases terminated for infractions of laws that have
operating in China with fewer restrictions than              not been made available to the public. It is also not
ever before.                                                 unheard of for such laws to be used as an excuse to stall
   Some of these changes may benefit foreign enter-          an initiative even though the true issue of contention is
prises by leveling the playing field and breaking down       entirely unrelated.
barriers established to protect less-competitive domes-
tic enterprises. Others, however, benefit domestic enter-    Development and Rationalization of the
prises as much as foreign ones. Ultimately, the              Financial Sector
government expects WTO membership to rationalize
the countryÕs international trading apparatus and foster         The Tenth Five Year Plan calls for a dramatic over-
highly competitive Chinese enterprises.                      haul of the entire Chinese financial sector. Again, as a
   The most significant changes anticipated within a         result of WTO accession, Chinese administrations are
decade of accession will be                                  attempting to bring domestic financial institutions up to
                                                             international standards. The central bankÑPeopleÕs
q   increased regulatory transparency,
                                                             Bank of ChinaÑand the China Securities Regulatory
q   further development and rationalization of the
                                                             Commission (CSRC) are raising standards in both the
    financial sector,
                                                             banking system and the securities markets, to ensure the
q   intensified SOE reform, and
                                                             viability of the financial sector and increase internation-
q   growth and development of the private sector.
                                                             al investor confidence. Several key components, such as
                                                             an efficient and reliable credit rating system, are still
Regulatory Transparency                                      lacking entirely. Other components are in need of fur-
                                                             ther development and strengthening.
   The Ministry of Foreign Trade and Economic
Cooperation (MOFTEC) has established a new agency            Banks. In November 2000, the National Bureau of
specifically intended to clarify all rules and regulations   Statistics reported that risks borne by the four state
associated with WTO entry and foreign trade laws and         commercial banks had increased by 65 percent over the
regulations. All foreign trade activities are governed by    past eight years, resulting in a drop in their capital ade-
formally published laws and regulations. Any internal        quacy ratios to an average of 5.51 percent in 1999 (the
laws and regulations that have not been formally pub-        internationally accepted critical rate of adequacy is 8
lished will be void. The MOFTEC has made clear its           percent). Based on an unpublished internal rating index,
intentions to overhaul regulations to bring them more        risk assessments in the financial sector as a whole have
in line with international standards and has mandated        risen by nearly 12 percent since 1991.
that any measures formulated and implemented by                 Administratively, political interference in commer-
local authorities must be consistent with national laws      cial banking operations remains a stumbling block, and
and reported to MOFTEC. All foreign business laws            the independent and efficient promulgation of regula-



18 U.S. Department of Commerce, International Trade Administration
tions is lacking. Meanwhile, competition within the             reduce market price distortions and strengthen the
banking sector is on the rise, placing increased per-           market as a whole.
formance pressures on the commercial banks. Two             q   Disclosure rules for listed companies are tightening,
years after WTO accession, foreign banks will be                increasing transparency. Increased transparency
allowed to make local currency loans to Chinese com-            limits the likelihood of accruing massive amounts
panies. Five years after accession, they will have unlim-       of bad debt in the market, as has occurred in
ited access to the consumer market.                             the banks.
   There is adequate awareness within the pertinent         q   Various market tools such as mutual funds are cur-
administrations regarding the concerns and threats the          rently under development. Foreign experts are
banking system faces. Administrative changes are                involved in the development of these tools; howev-
underway, but some analysts question how efficiently            er, their capacity to invest directly in the market will
reforms can be carried out. The PeopleÕs Bank of China          remain extremely limited for some time.
is developing an index system to detect and evaluate        q   A slow opening of the A-shares market to foreign
financial risks. It will monitor operations within the          companies looking to list in China is expected to
banks, security markets, and other fundamental macro-           begin soon. The A-shares market is reserved for
economic indicators.                                            domestic investors and firms, and the B-shares mar-
                                                                ket, previously reserved for foreign investors, has
Stock Markets. ChinaÕs stock markets are somewhat               recently been made available to domestic buyers.
chaotic, thriving more on rumor and manipulation than       q   Listing policies are easing, and more enterprises
on market-oriented standards. Regulations and qualifi-          (SOEs) are listing.
cations for listing in the markets are strict, keeping      q   Discussion regarding the development of a new
many companies off the boards. Meanwhile, the stock             technology-based market similar to the NASDAQ is
exchange is partially used to fund ailing SOEs through          ongoing. The bursting of the new economy bubble
public offerings, and investors often buy in believing          late in 2000 stirred speculation that such a new
that the government will not allow a listed SOE to go           board may offer opportunities for smaller firms
bankrupt. The Zhengzhou Baiwen Company nearly                   loosely related to the technology sector to list, as
proved them wrong in late 2000 when speculation arose           the resulting dearth of new-economy firms would
that the massive retailer would be allowed to go under,         fail to saturate the market. At the time of publica-
but instead the SOE was bailed out once again, only             tion, the future of the new board was still uncertain.
enforcing the belief. Regulators reportedly feared that
                                                            Bond Markets. Currently, SDPC examines the issuance
allowing Baiwen to go bankrupt would decimate
                                                            of all corporate bonds and sets limits on their volume.
investor confidence and possibly drain financial support
                                                            Each year less than $1.2 billion worth of corporate
from the 1,000-plus listed companies. In April 2001,
                                                            bonds are floated, as compared with $48 billion in treas-
ChinaÕs first delisting finally occurred, marking the
                                                            ury bonds. The CSRC controls the interest rates of both
demise of the Shanghai Narcissus Electric Appliance
                                                            types of bonds. Corporate bond interest rates are rou-
Company. The event was accompanied by warnings of
                                                            tinely set below those for treasury bonds.
possible future delistings of similarly troubled enter-
prises, as well as widespread accolades for a sound step
toward the modernization of the Chinese economy.            SOE Reform
   Prior to the Narcissus event, government-supported
                                                               In 1998, Premier Zhu Rongji set a goal to turn around
investor confidence led ChinaÕs A-shares market to rank
                                                            loss-making SOEs within three years. While the time
as the worldÕs second best performing market in terms
                                                            schedule has been relaxed somewhat, SOE reform poli-
of growth in 2000. There is much indication that
                                                            cies since then have focused on enterprise restructuring,
changes will arise, making future stock market growth
                                                            downsizing, and adjusting product output mixes. The
more quality based in coming years. If faithfully imple-
                                                            government has also been focusing on a small number
mented, the initiatives listed below should increase
                                                            of what it calls ÒkeyÓ enterprises and major industries
competition, creating stronger links between stock
                                                            while deconstructing small and medium-sized SOEs
prices and profits and thereby shifting capital to the
                                                            and encouraging non-state capital to enter more sectors.
stronger companies:
                                                            During the Tenth Five Year Plan, reform will continue.
q   The CSRC has pledged to reduce interference in the      The State Economic and Trade Commission (SETC) is
    setting of stock prices, slowly allowing market         expected to consolidate the state-owned sector into 50
    forces to determine rates of growth in order to         to 100 giant SOEs.


                                                                                      China Export Market Plan 19
    By the end of 2000, proclamations of attaining Zhu         Selected References and Web Sites
RongjiÕs goal were numerous, even though the govern-
ment was calling them questionable. The SETC pro-              References
claimed that 520 of the countryÕs best-performing SOEs
registered profits upward of $25 billion in the first 11       Asian Development Bank. Country Economic Review:
months of the year. However, a closer analysis indicates       PeopleÕs Republic of China. (Manila: Asian
that 9 of the 14 major industries accounted for 93.6 per-      Development Bank, October 2000. Available online at
cent of the total earnings and that petroleum and tele-        www.adb.org/china/default.asp.) October 2000.
com alone accounted for 50 percent. One hundred
fifty-eight of the 520 key SOEs registered 95.6 percent        Bhattasali, Deepak, and Masahiro Kawai, ÒImplications
of the profits, and the top ten performing SOEs account-       of ChinaÕs Accession to the World Trade Organization.Ó
ed for 74.2 percent of the total profits.                      (Paper presented at a conference sponsored by the
    A number of factors such as high international oil         German Institute for Japanese Studies and the Fujitsu
prices, reduced debt burden as a result of debt-to-equi-       Research Institute, Tokyo, January 18Ð19, 2001.)
ty swaps, increased exports, and a number of IPOs on
foreign exchanges are partially responsible for the prof-      Cao Dong and Sun Rongqing. Environmental
its. Varying degrees of sustainability among these and         Financing in China: A Review. CRAES/SEPA working
other factors indicate that a lot of work has yet to be        paper presented at a conference sponsored by the
done if the SOEs are to gain true overall profitability.       OECD Center for Cooperation with Non-Members,
                                                               Environment Policy Committee, November 2000.

The Private Sector                                             CIA Directorate. ChinaÕs Economy: 1995Ð97.
   Income tax payments from private enterprises in             December 1997.
Beijing increased 110 times over the past six years, with      www.cia.gov/cia/di/products/china_economy/.
their contribution to overall business income tax rev-
enue in the municipality increasing from 0.3 percent in        International Finance Corporation. ChinaÕs Emerging
1994 to 15.7 percent in 2000.                                  Private Enterprises: Prospects for the New Century.
   There remains little doubt that regulatory authorities      September 2000. www.ifc.org/publications/.
recognize the importance of the private sector and are
quietly condoning its support. The SETC is taking on           Wang Jinnan, Wu Shunze, and Luo Hong. Integrating
the role of promoting the private sectorÕs development,        Economic Development and Environmental Protection
and drafting guidelines. The government has also               in China During the 10th Five-Year Plan Period.
expressed a desire for the private sector to participate in    Beijing: CRAES. November 2000.
the western development plan, and the Ministry of
Construction has indicated that the tightly controlled         Web Sites
urban utility sector is gradually opening to private
enterprise investment as well.                                 BuyUSA:
   Nonetheless, a host of barriers continue to hinder the      www.buyusa.com
sector. It is extremely difficult for private enterprises to
access funding from either banks or securities markets.        ChinaOnline:
Private enterprises, like foreign-invested enterprises,        www.chinaonline.com
are restricted to certain sectors. State owned and private
enterprises are not treated equally in regard to registra-     South China Morning Post:
tion, taxation, government services, international trade,      www.scmp.com
and access to financing. (For a detailed analysis of
ChinaÕs private sector, see the International Finance          U.S.-China Business Council:
CorporationÕs ÒChinaÕs Emerging Private Enterprises,Ó          www.uschina.org
available online at www.ifc.org/publications.)
                                                               U.S. Department of Commerce:
                                                               www.doc.gov, www.usatrade.gov




20 U.S. Department of Commerce, International Trade Administration
U.S. Department of Commerce, Office of
Environmental Technologies Industries:
www.environment.ita.doc.gov

U.S. Embassy, Beijing:
www.usembassy-china.org.cn

U.S. Embassy, Beijing. Country Commercial
Guide: China:
www.usatrade.gov

World Bank Group in China:
www.worldbank.org.cn/English/home.asp




                                            China Export Market Plan 21
                                                     Chapter 3
                                  Legal and Policy Review


Prior to the 1970s, few administrative measures were           Legal Framework of Environmental Protection
promulgated to facilitate the administration of water and      Laws and Regulations
soil conservation, forestation, health and safety in the
workplace, or urban beautification, and no clear environ-         ChinaÕs legal system for environmental protection is
mental protection goals, laws, or policies existed in China.   based on a broad framework (at the constitutional level)
This remained the case until after the Chinese government      that is filled in by laws and regulations stipulated by
attended the 1972 United Nations Conference on the             incrementally lower levels of law-making bodies.
Human Environment (UNCHE) in Stockholm, which is
regarded not only as a milestone in the development of
international environmental protection but also as a turn-     The Constitution
ing point in the development of environmental protection
in China. In 1973, the first National Environmental               Article 11 of the Constitution, promulgated in 1978,
Protection Meeting was held in Beijing. Following the          initially gave a constitutional basis to the protection of
meeting the State Council promulgated its Guidelines on        the environment. Since the articleÕs promulgation, the
Environmental Protection and its Rules on Environmental        Constitution has undergone further reform, strengthen-
Protection and Improvement, which are regarded as              ing commitment to environmental protection.
ChinaÕs first environmental policies. At that time, these      Nonetheless, the constitutional commitment to the
policies filled the role of the environmental protection law   environment is general, serving only as a base of legit-
promulgated on a trial basis six years later. Since then,      imacy for the further development of environmental
environmental protection has gained increasing promi-          laws and regulations.
nence on the government agenda.
   Following the first National Environmental
Protection Meeting of 1973, the Environmental                  Basic Law
Protection Committee of the State Council was estab-
                                                                  The basic, or general, laws are those laws formulated
lished in 1974, culminating in the development of a
                                                               by the NPC and its Standing Committee, and they rank
national-level environmental protection administration.
                                                               second to the Constitution in terms of authority. These
Under this organization, several environmental protec-
                                                               laws are more pointed than the components of the
tion regulations, as well as standards on pollution dis-
                                                               Constitution that support environmental protection, but
charge and quality of municipal drinking water and
                                                               they remain general in comparison with the regulations
food, were enacted between 1974 and 1978.
                                                               devised to carry out their directives. Currently, six such
   In 1978, the Constitution of the PeopleÕs Republic of
                                                               laws have been promulgated with regard to environ-
China was amended to include Article 11, marking for
                                                               mental protection. They are
the first time an inclusion of environmental protection
therein and providing a constitutional basis toward            1. the Environmental Protection Law of the PRC,
those means. The ÒtrialÓ Environmental Protection Law          2. the Marine Environmental Protection Law of
of China was then promulgated in 1979, stipulating                the PRC,
many of the basic components of environmental protec-          3. the Water Pollution Prevention and Control Law of
tion in China today. In 1989, the Environmental                   the PRC,
Protection Law of the PRC was promulgated, replacing           4. the Air Pollution Prevention and Control Law of
the trial law of 1979. By the end of 2000, six laws,              the PRC,
around 100 administrative regulations, and over 1,000          5. the Solid Waste Management Law of the PRC, and
local regulations had been promulgated by the National         6. the Environmental Noise Pollution Prevention and
PeopleÕs Congress (NPC), the State Council, various               Control Law of the PRC.
ministries, and provincial and municipal governments.



22 U.S. Department of Commerce, International Trade Administration
Regulations                                                     2. Stressing Prevention While Strengthening
                                                                   Control places the emphasis of environmental pro-
   Administrative regulations of the State Council serve           tection on pollution prevention but recognizes that
to implement the basic laws promulgated by the NPC and             in most cases gradual improvements in pollution
its Standing Committee. Basic laws rank higher in                  abatement efforts are all that can be expected.
authority than regulations; however, regulations are more       3. The Polluter Pays principle seeks to impose the
numerous, specific, and instrumental than basic laws.              costs of environmental degradation on those who
There are many regulations for environmental protection,           are responsible for that degradation. In practice,
including, for example, the Administrative Regulations             these costs are imposed directly upon Chinese
for Environmental Protection of Construc-tion Projects,            enterprises, in the form of pollution levies, and
the Implementation Details of the Water Pollution                  only indirectly upon consumers, in the form of
Prevention and Control Law of the PRC, and the                     higher prices.
Implementation Details of the Air Pollution Prevention          4. Public Participation is, theoretically, sought out in
and Control Law of the PRC.                                        ChinaÕs environmental protection legal apparatus.
   Ministerial administrative regulations rank next in             In many cases, the capacity for the public to influ-
the authoritative hierarchy, and again they exceed their           ence environmental protection remains limited by
superiors in number. SEPA is the major source of min-              the same factors that affect its impact on other pub-
isterial regulations with regard to environmental protec-          lic spheres, and public participation is largely
tion. Several other ministries and commissions, such as            excluded from the policy development process.
SDPC and SETC, issue them as well.                                 However, many environmental protection bureaus
   The PeopleÕs Congresses at the provincial and                   (EPBs) at the municipal level accept and process
municipal levels, as well as other local government                public input and complaints in regard to environ-
bodies, issue local regulations limited in authority to            mental degradation. Administrators are realizing
their respective localities. It is at this point that ChinaÕs      that encouraging public voicing of dissatisfaction
legal structure becomes most specific. Local regula-               (within Òthe bounds of the lawÓ) may help to justi-
tions, and thereby local implementation of national                fy increased spending on environmental protection,
laws, can vary from locality to locality.                          and citizens are increasingly encouraged to support
                                                                   environmental protection.
International Treaties
   International treaties are a final component of              National Measures Toward Environmental
ChinaÕs environmental legal system. China is signatory          Planning and Protection
to 73 international treaties particular to environmental
protection, 50 of which are multilateral and 23 bilateral.         The following is a broad-based description of the
                                                                processes and measures through which national-level
                                                                environmental protection is constituted and carried out.
Leading Principles of Environmental                             Although the environmental legal system in China is
Protection Laws and Regulations                                 increasingly comprehensive and rationalized, it remains
                                                                complex and in certain cases contradictory.
   Four legal principles define ChinaÕs environmental           Additionally, laws and regulations are sometimes
protection goals and serve as the broad guidelines of           revised and promulgated quite rapidly.
environmental protection legislation:                              Environmental protection planning establishes envi-
                                                                ronmental protection targets and the measures needed to
1. Harmonious Development stipulates that environ-              meet those targets. Local EPBs conduct preliminary
   mental protection must parallel economic and social          surveys and establish plans that are then submitted to
   development, so as to achieve economic, social, and          SEPA for national-level review and incorporation into
   environmental benefits in unison. Its ultimate goal          the national Five Year Plans. The process takes years
   is the realization of sustainable development, and it        and requires repeated confirmation, evaluation, consult-
   is interpreted by the law in that environmental pro-         ing, and coordination.
   tection must be incorporated into all social and eco-           The plan targets set for the year 2000 included
   nomic development planning.                                  the following:




                                                                                        China Export Market Plan 23
 Box 5. Public Participation
 A number of recent public opinion polls carried out by private market research companies, research centers, and other interest
 groups have found that environmental issues are registering as top concerns of Chinese citizens. In a 2000 survey in 10 cities
 around the country, about half of the respondents selected environmental protection as their top concern, ahead of issues such
 as unemployment, corruption, and economic growth. A 2001 survey found a similar number of people ranking environmental
 issues over population growth and an underdeveloped education system.
    In accordance with Article 11 of the Environmental Protection Law, SEPA and provincial EPBs have been issuing national
 or provincial environmental reports on a regular basis since 1989. The reports, which cover water, marine, air, noise, industri-
 al solid waste, radiation, land and cultivated land, forest and grassland, biodiversity, climate change, and other related issues,
 also provide statistical data and information on major environmental protection activities. The purpose of the reports is to arouse
 public concern, instigate a degree of pressure on polluters and local governments, and drum up citizen support, interest, and
 even supervision over environmental issues. The regularity of these reports varies from locale to locale, with some cities report-
 ing on some subjects daily. Prior to these allowances, such information was not made public.
    To further facilitate public participation in environmental protection, SEPA issued a notice on establishing separate offices
 at both SEPA and local EPBs to review and respond to citizen complaints in December 1990. According to this and further reg-
 ulations, such complaints must be responded to within 30 or 90 days, depending upon the intricacies of the issue at hand. If cit-
 izens are dissatisfied with the solution proposed by an EPB, they are entitled to refer the issue to higher-level EPBs or to the
 courts for reexamination. Citizens dissatisfied with a solution proposed by SEPA may refer the issue to the courts.



q   The development of a relatively well organized                   Environmental Planning During the Ninth
    environmental management and legal system appro-                 Five Year Plan
    priate to the socialist market economy
q   The placing of environmental pollution and ecologi-                 Goals for the Ninth Five Year Plan sought to keep the
    cal damage Òlargely under controlÓ                               year 2000 discharge rates of many pollutants near or
q   The facilitation of environmental improvement for                below 1995 levels while increasing overall economic
    some cities and regions                                          and productivity growth. Table 3.1 lists the official 1995
q   The establishment of a number of demonstration                   statistics for 21 major pollution categories and the cor-
    cities and regions whose economies are in rapid                  responding goals for the year 2000.
    development and whose environments and ecology                      A number of programs, such as the One Control and
    are in sound condition                                           Two Targets (Yi Kong Shuang Da Biao in Chinese), the
                                                                     3321 Campaign, and the China Trans-century Green
    The plan for 2010 includes the following targets:
                                                                     Engineering Program, have been established to facili-
q   A Òfairly well implementedÓ sustainable develop-                 tate the implementation of the plan.
    ment strategy
q   The further establishment of an environmental legal              One Control and Two Targets. One Control and Two
    system                                                           Targets is intended to control pollution in terms of total
q   A Òlargely changedÓ situation of environmental                   emissions, thereby controlling discharge concentration at
    pollution and ecological deterioration                           point sources of pollution and improving air and water
q   Sharply improved environmental quality                           quality. ÒOne controlÓ refers to the total emissions of a
q   The achievement, within a Òlarge number of cities                particular polluting discharge allowed nationwide. Under
    and regions,Ó of rapidly developing economies with               the plan, the total allotment for each pollutant is to be
    sound ecological and environmental conditions                    divided among the provinces, and then further divided
                                                                     within the provinces, all the way down to local EPBs and
   Although the plan targets appear to be vague, gen-
                                                                     ultimately to each enterprise. Older facilities, which are
eral, and in some cases overly idealistic, they serve a
                                                                     usually state-owned, are generally given higher alloca-
fundamental purpose in setting goals to be achieved
                                                                     tions for discharge, while newer facilities are seen as
through the administrative capacities of lower-level
                                                                     more capable of reducing overall discharge levels.
governments.
                                                                        The Òtwo targetsÓ are to bring Chinese industries
                                                                     within local and national standards regarding all indus-
                                                                     trial pollutants and to improve air and water quality in




24 U.S. Department of Commerce, International Trade Administration
Table 3.1 1995 Pollution Figures and Year 2000 Targets


Category of Pollutant                                                       1995 Levels                    Target Levels for 2000


Total soot emission (10,000 tons)                                            1,744                           1,750
Industrial dust discharge (10,000 tons)                                      1,731                           1,700
Sulfur dioxide emissions (10,000 tons)                                       2,370                           2,460
Chemical oxygen demand (10,000 tons)                                         2,233                           2,200
Oil pollutant discharge (tons)                                              84,370                          83,100
Cyanide discharge (tons)                                                     3,495                           3,273
Arsenic discharge (tons)                                                     1,446                           1,376
Mercury discharge (tons)                                                         27                             26
Lead discharge (tons)                                                        1,700                           1,670
Cadmium discharge (tons)                                                       285                             270
Hexivalent chromium discharge (tons)                                           670                             618
Industrial solid waste (10,000 tons)                                         6,170                           5,995
Wastewater discharge (100 million tons)                                        356                             480
Industrial wastewater discharge (100 million tons)                             222.5                           300
Treatment rate of industrial wastewater (percent)                                76.8                           74
Treatment rate of urban sewage (percent)                                         19                             25
Treatment rate of industrial waste gases                                         74                             80
Comprehensive utilization rate of industrial solid wastes                        40                             45
Decontamination rate of urban refuse (percent)                                   43                             50
Forest coverage (percent)                                                        13.92                          15.5
Nature reserve area (10,000 hectares)                                        7,185                          10,000


Note: The amounts of wastewater and industrial wastewater discharged and the treatment rates in 1995 do not cover township enterprises.
Source: Ninth Five Year Plan for Environmental Protection and Year 2010 Long-Term Goals (Beijing: SEPA, 1996); available online at
www8.silversand.net/com/lser/GH/gh_1/2010.htm.



municipalities, provincial capital cities, special eco-                 a grace period extending to Dec. 31, 2002. Those enter-
nomic zones, coastal development cities, and major                      prises not identified by SETC as ÒkeyÓ will face strict
tourist cities. In 1997, SEPA issued the Ninth Five Year                measures formulated by their local governments, includ-
Plan Òtotal emissions controlÓ (TEC) standards for 12                   ing requisite ceasing of production or closings. There is
major pollutants (see Table 3.2). Enterprises unable to                 reason to believe that the figure of 90 percent is not
meet the requirements of One Control and Two Targets                    entirely accurate, and issues of reversion raise questions
face closure.                                                           regarding whether all enterprises that met the standards
   Official figures indicate that among 238,000 enter-                  by the deadline are still operating within them.
prises affected by the One Control and Two Targets pro-
gram nationwide, 90 percent reached the targets by the                  The 3-3-2-1 Campaign. The 3-3-2-1 Campaign refers
end of 2000. Among those that did not reach the targets,                to the following targets, which have been selected as
520 Òkey enterprisesÓ identified by SETC were granted                   key pollution prevention and control zones: three rivers



                                                                                                     China Export Market Plan 25
Table 3.2 Pollutants Selected for Total Emissions Control


Category of Pollutant                                        1995 Levels            Target Levels for 2000       2000 vs.1995 (percent)


Total soot emission (10,000 tons)                             1,744                  1,750                        0.37
Industrial dust discharge (10,000 tons)                       1,731                  1,700                        1.80
Sulfur dioxide emissions (10,000 tons)                        2,370                  2,460                        3.82
Chemical oxygen demand (10,000 tons)                          2,233                  2,200                        1.49
Oil pollutant discharge (tons)                               84,370                 83,100                        1.5
Cyanide discharge (tons)                                      3,495                  3,273                        6.4
Arsenic discharge (tons)                                      1,446                  1,376                        4.8
Mercury discharge (tons)                                          27                    26                        3.7
Lead discharge (tons)                                         1,700                  1,670                        1.9
Cadmium discharge (tons)                                        285                    270                        5.4
Hexivalent chromium discharge (tons)                            670                    618                        7.7
Industrial solid waste (10,000 tons)                          6,170                  5,995                        2.9


Source: National Total Pollution Control Scheme for the Ninth Five Year Plan (Beijing: SEPA, 1997); available online at
www.zhb.gov.cn/sepa/layout/files/95.htm.

(the Huaihe, the Liaohe, and the Haihe); three lakes                    Agenda 21, the Trans-century Green Engineering
(Taihu, Chaohu, and Dianchi); two zones (an acid rain                   Program is composed of a series of environmental pro-
control zone and an SO2 control zone); and one munic-                   tection projects implemented in key locations and pro-
ipality (Beijing). Most of these targets exist in or are                vided for through enhanced financial resources. The
affected by several provinces, thus making strong coop-                 programÕs aim is to focus limited financial resources
eration among provincial governments necessary. Each                    and manpower on serious pollution issues to bring envi-
was selected because of serious pollution issues.                       ronmental and ecological deterioration under control.
   The acid rain control zone and SO2 control zone total                The project has three phases, corresponding with the
1.09 million square kilometers in area, which amounts to                Ninth, Tenth, and Eleventh Five-Year Plans.
11.4 percent of ChinaÕs total territory. Within this, the
acid rain control zone covers about 133 cities and coun-                Agenda 21. ChinaÕs Agenda 21 is a direct result of the
ties in Shanghai, Jiangsu, Zhejiang, Anhui, Fujian,                     1992 United Nations Conference on Environment and
Jiangxi, Hubei, Hunan, Guangdong, Guangxi,                              Development in Rio de Janeiro, and it was in fact the
Chongqing, Sichuan, Guizhou, and Yunnan. The total                      first national-level Agenda 21 formulated in the world.
area reaches 0.8 million square kilometers, amounting to                The program is now regarded as the countryÕs blueprint
8.4 percent of the total Chinese territory. The SO2 control             for sustainable development and environmental protec-
zone covers about 125 cities and counties in Beijing,                   tion. Agenda 21Õs primary focuses include capping
Tianjin, Hebei, Shaanxi, Inner Mongolia, Liaoning, Jilin,               industrial pollution at 1995 levels while maintaining
Jiangsu, Shandong, Henan, Shanxi, Gansu, Ningxia, and                   rapid industrial growth; increasing pollution levies so as
Xinjiang. The total area reaches 0.29 million square kilo-              to equal or exceed waste-treatment costs; increasing and
meters, amounting to 3 percent of the total territory.                  improving the use of market-based and financial tools
These regions constitute the most troublesome sources of                for environmental protection; promoting clean produc-
SO2 and acid rain; therefore more stringent measures are                tion; and developing a large-scale plan for environmen-
being taken in them to address the problems.                            tal protection known as the Trans-century Green
                                                                        Engineering Program.
The Trans-century Green Engineering Program.
Initiated as part of the Ninth Five Year Plan for                       The Center for Environmentally Sound Technology
Environmental Protection, and under the auspices of                     Transfer. The Center for Environmentally Sound


26 U.S. Department of Commerce, International Trade Administration
Table 3.3 Trans-century Green Engineering Program Project Distribution

Contents of Control                                                           Number of Projects        Remarks

1. Control of water pollution in seven major river basins                                     650       A total of 801 projects for
    Huaihe basin                                                                              282       prevention and control of
                                                                                                        water pollution
    Liaohe basin                                                                                30
    Haihe basin                                                                                 56
    Songhua River basin                                                                         44
    Yellow River basin                                                                          69
    Pearl River basin                                                                           36
    Yangtze River basin                                                                       133
2. Control of water pollution in three major lakes                                              35
    Dianchi                                                                                     13
    Chaohu                                                                                       7
    Taihu                                                                                       15
3. Control of water pollution in major coastal cities                                           99
4. Control of water pollution in other cities                                                   17
5. Major acid rain pollution control regions                                                  109
    East China                                                                                   9
    Central China                                                                               36
    South China                                                                                 28
    Southwest China                                                                             36
6. Control of air pollution in major cities                                                   219
7. Control of solid waste pollution                                                           272       A total of 328 projects for
    Industrial solid wastes                                                                    118      prevention and control of
                                                                                                        air pollution
    Hazardous waste and radioactive waste                                                       85
    Disposal of municipal waste                                                                 69
8. Ecological environmental protection                                                         118
    Ecological environmental protection and restoration                                         54
    Rural ecological protection                                                                 37
    Preservation of nature reserves                                                             27
9. Actions related to global environmental issues                                               69
    Greenhouse gas control                                                                      28
    Ozone layer protection                                                                      14
    Biodiversity conservation                                                                   27
10. Capacity building of national environmental supervision and administration                   3

Total                                                                                       1,591

Source: The China Trans-century Green Engineering Program (Beijing: SEPA, 1996); available online at
www.zhb.gov.cn/sepa/layout/files/greenhtm.



                                                                                                  China Export Market Plan 27
Technology Transfer (CESTT) was established in 1997              mental safety and prevent and control radiation-
with the intention of further developing ChinaÕs Agenda          associated issues actively
21. With support from the Ministry of Science and            q   To accelerate the modernization of environmental
Technology, technical assistance via the Asian                   management in the energy industry
Development Bank, and under the direction of the             q   To protect national environmental safety and par-
administrative center for Agenda 21, CESTT assists               ticipate actively in international environmental
small and medium-sized enterprises with accessing,               initiatives
developing, and applying environmentally sound
                                                                In augmentation of the 3321 Campaign of the Ninth
technologies.
                                                             Five Year Plan, key regions identified in the tenth plan
                                                             will include the Yangtze River, the Yellow River, and
                                                             the Bohai sea; the number of key cities for pollution
The Tenth Five Year Plan for Environmental                   control is to be expanded from 47 to 100.
Protection
   SEPA completed its draft of the Tenth National Five       Environmental Protection Standards
Year Plan for Environmental Protection (2001Ð2005),
which was incorporated into the Tenth National Five             By the end of 1999, 426 environmental standards had
Year Plan for Economic and Social Development (the           been established throughout China, classified as nation-
Tenth Five Year Plan) in March 2001. The plan stipu-         al environmental standards, SEPA environmental stan-
lates environmental targets for the end of 2005, which       dards, and local environmental standards. SEPA is in
are characteristically general in nature. They include the   charge of the establishment of national environmental
further establishment of environmental protection poli-      standards and SEPA environmental standards, both of
cy, law, and administrative systems appropriate to a         which are in use nationwide. SEPA environmental stan-
socialist market economic system; a reduction in the         dards function for categories for which national stan-
tendency toward environmental pollution and ecologi-         dards are not available. Once equivalent national
cal deterioration; the improvement of environmental          environmental standards are formulated, SEPA environ-
quality in key cities and regions; and an increase in the    mental standards automatically become invalid.
number of cities and regions in which economic devel-           National environmental standards include the
opment is rapid while environmental and ecological           following:
conditions remain sound.                                     q   National environmental quality standards, which
   Tasks for the Tenth Five Year Plan include                    regulate the concentration of toxic substances in a
the following:                                                   given environment and serve as the basis for other
q   To continue total emission control and maintain a            environmental standards
    continuous decline in total pollution discharge
                                                             q   National emissions standards, which regulate the
q   To direct economic restructuring toward the promo-           concentration of pollutants discharged into a
    tion of clean production                                     given environment
q   To promote municipal sustainable development
                                                             q   National environmental monitoring methods stan-
    focusing on the improvement of environmental                 dards, which regulate techniques and methods used
    quality                                                      in sampling, testing, analyzing, and processing data
q   To emphasize ecological protection and pollution             collected for monitoring environmental quality
    prevention and control equally                               and emissions
q   To launch a Òthree zoneÓ ecological protection strat-
                                                             q   National environmental sampling standards, which
    egy to include special ecological function zones,            are used for preparing solutions, adjusting and col-
    key resource development zones, and ecologically             lating analysis and testing equipment, and regulat-
    sound zones                                                  ing other aspects of sampling and analysis
q   To strengthen environmental protection enforcement
                                                             q   National environmental basic standards, which stan-
    in rural areas and to control rural environmental            dardize items such as technical terms, symbols,
    pollution effectively                                        abbreviations, graphics, and data indexes used in
q   To develop the domestic environmental industry               the environmental protection field
    and to maintain an effective supply of environmen-          When no national environmental quality standards or
    tal technologies and products                            national emissions standards are available for a particu-
q   To strengthen the management of nuclear environ-         lar category, provincial governments may formulate


28 U.S. Department of Commerce, International Trade Administration
local standards; provincial governments may also set          oped steadily, incorporating the experiences of other
more stringent standards than the equivalent national         countries with local practices and constraints and result-
emissions standards. Local standards must be submitted        ing in a system that in many ways is beginning to
to SEPA for record keeping.                                   resemble EIA programs elsewhere. The Administrative
                                                              Regulations for Environmental Protection of
Three Simultaneous Steps                                      Construction Projects (1990) and the Technical
                                                              Guidelines for Environmental Impact Assessment
   The Three Simultaneous Steps policy stipulates that        (1993) are key pieces of legislation strengthening the
all environmental protection facilities must be designed,     countryÕs EIA program. Other laws, such as the Marine
constructed, and operated simultaneously with the main        Environmental Protection Law, the Water Pollution
construction project, as opposed to designing, building,      Prevention and Control Law, and the Air Pollution
and operating a facility with the intention of retrofitting   Prevention and Control Law, include EIA requirements.
the project with an environmental protection plan and            The scope of EIAs is presently restricted to construc-
facility at some stage after its completion. The Three        tion projects, including expansion and renovation proj-
Simultaneous Steps policy applies to all new, expan-          ects, and does not include major long-term planning,
sion, and renovation projects. For treatment facilities,      policy, or regional development considerations. A
the measure is generally applied to those components          revised EIA law is currently undergoing review and,
that are being expanded or renovated; however, it may         when promulgated, will reportedly require performance
apply to an entire facility once any portion is added,        of the EIA at an earlier stage of the project approval
modified, or upgraded.                                        process, increasingly comprehensive methods and pro-
   The three steps for treatment facilities can be sum-       tocols, cost-benefit analysis, fines for non-compliances,
marized as follows:                                           and legal liabilities.
                                                                 Regulatory guidelines such as the Administrative
1. Design: The engineering design institution must
                                                              Regulations for Environmental Protection of
   ensure that the pollution measures recommended in
                                                              Construction Projects, the National Technical
   the environmental impact assessment (EIA) and
                                                              Guidelines for Environmental Impact Assessment, and
   required under the Three Simultaneous Steps meas-
                                                              the Administrative Provisions for the Inspection and
   ure are included in the facility design. Technically,
                                                              Approval of Completed Environmental Protection
   this process involves receiving approval from the
                                                              Facilities of Construction Projects (1993) regulate the
   same environmental regulatory entity that approved
                                                              EIA process. The most recent EIA regulation is the 1998
   the projectÕs initial EIA report (SEPA, the provincial
                                                              Management Protocol. Significantly, the State Council
   EPB, or the local EPB, contingent on the scale of
                                                              itself issued this document, while the other regulations
   the project). In reality it is often synonymous with
                                                              listed above were issued by SEPA. The 1998
   registering the project.
                                                              Management Protocol is a detailed implementation doc-
2. Construction: The construction of environmental
                                                              ument backed by the authority of the premierÕs office
   facilities must meet the requirements as specified in
                                                              and is relatively well enforced. It includes existing over-
   the EIA and should be undertaken simultaneously
                                                              all policy goals such as mass loading targets and use of
   with the main construction component.
                                                              clean technology and provides greater detail on the reg-
3. Operation: Upon completion of construction, a trial
                                                              ulation of EIAs and environmental facility construction,
   operation period commences. Following the trial
                                                              including specification of non-compliance fines.
   operation period, a thorough inspection of the tech-
   nical, financial, health, safety, and environmental
   aspects of the completed project is implemented.           Clean Production
   If a facility fails the inspection, the EPB requires
   upgrading and a further inspection within a specified         The state encourages the adoption of clean produc-
   time period.                                               tion to reduce air and water pollution and the accumu-
                                                              lation of solid waste. The SETC is authorized, in
Environmental Impact Assessment                               conjunction with other ministries, to list for elimination
                                                              certain ÒbackwardÓ production techniques and tech-
   The EIA concept was first introduced to China in the       nologies known to cause heavy air and water pollution
Environmental Protection Law of 1979. Beginning in            or to result in the creation of significant amounts of
the mid-1980s, the government began requiring EIAs            solid waste. The production, sale, and use of the listed
for large-scale projects. The program has since devel-        techniques and technologies are illegal. Similarly,


                                                                                       China Export Market Plan 29
SETC publishes listings of clean production technolo-         determine the exact amount of the emissions fee, in
gies and techniques, the use of which is encouraged.          accordance with pertinent regulations.
                                                                  Revenues collected via the emissions fee system are
Emissions Registration and Emissions License                  generally recycled into the environmental protection
                                                              apparatus by servicing loans and grants for upgrading
    Emissions registration requires enterprises constitut-    enterprises (as much as 80 percent of the fees paid by an
ing a pollution source to register with local EPBs in         enterprise can be returned to the enterprise to finance
regard to those pollutants being legally discharged. The      environmental upgrades), augmenting EPB budgets,
purpose of the registration is to facilitate comprehensive    and financing pollution treatment and the restoration of
accounting by local EPBs regarding emissions under            polluted environments. The fees do not, however,
their jurisdiction. Registration also enables further         exempt enterprises from legal liabilities, compensation
administrative action toward pollution prevention and         for personal injury or property losses, or other financial
control, monitoring, supervision, and compilation of sta-     burdens associated with further pollution prevention
tistics. Local EPBs have the right to inspect facilities to   and control measures.
verify the information provided by registered enterprises.        The major weakness of the Chinese emissions fee
    Emissions registration must be filed with local EPBs      system is that levies remain too low to provide an incen-
following the inspection and approval of pollution pre-       tive for pollution control. Some enterprises find it more
vention and control facilities and prior to official com-     cost-effective to submit emissions fees than to develop
mencement of operation. The scope of registration             or operate costly pollution control facilities or take other
includes type, quantity, and concentration of emissions,      measures to prevent and control emissions. Additionally,
receptacle of emission discharge, process of emissions        local EPBs often prefer to maintain emissions fees at the
discharge, type of noise pollution sources, strength of       current lower level rather than increase them and pro-
noise pollution, general conditions of pollution preven-      vide a stronger incentive to improve pollution control,
tion and control facilities, and general conditions of        because 20 percent of all collected emissions fees are
storage, utilization, and disposal facilities for solid and   used to augment EPB budgets; there has been recent dis-
other types of waste.                                         cussion, however, regarding the elimination of this prac-
    If there are any significant changes to the registered    tice. There is also discussion of transforming the current
items during the operation of a facility, including the       emissions fee system into a more efficient and better-
removal or disuse of the facility, the enterprise must file   regulated taxation system, but such a change is not
an amending registration with the original EPB 15 days        expected during the Tenth Five Year Plan.
prior to the change. Enterprises ceasing operations must          Coal consumption, which remains the principal ener-
inform the original EPB. If emissions do not meet rele-       gy source in China, reached 1.28 billion tons in 1995,
vant national or local standards, enterprises must speci-     and SO2 emissions resulting from coal burning reached
fy why and adopt measures to meet the standards.              23.7 million tons, ranking as the worldÕs highest. In
    In addition to registering, the enterprise must submit    early 1992, to tackle the problem, SEPA together with a
an emissions license application to the local EPB. Upon       number of other ministries and supported by the State
successful application, an emissions license will be          Council initiated a trial SO2 emissions fee for coal burn-
issued to the enterprise to serve as legal permission for     ing in industrial sectors. Guizhou Province, Guangdong
the discharge of specified pollutants. This regulation        Province, and nine cities in other provinces were select-
does not apply to radioactive waste, which is subject to      ed for the trial. Based on the experiences in these
separate and more rigorous requirements.                      locales, the practice was expanded, eventually covering
                                                              the entire acid rain control zone and SO2 control zone by
                                                              Jan. 1, 1998. Unlike most other emissions fees, the SO2
Emissions Fees
                                                              emissions fee is collected regardless of whether the
   Emissions fees are levied on enterprises discharging       emissions exceeded standards; any emission of SO2
pollutants in excess of state standards. Under new air        requires a fee, whereas the exceeding of standards con-
and water laws, all emissions, even those not exceeding       stitutes a basis for heavier enforcement measures.
state standards, receive levies, with heavier levies, legal
liabilities, and potential closure looming for those enter-
                                                              Environmental Monitoring
prises exceeding state standards. Local EPBs or their
authorized monitoring institutions survey factors such           Under the Environmental Protection Law, monitor-
as the type, quantity, and concentration of pollutants to     ing systems must be established to conduct environ-


30 U.S. Department of Commerce, International Trade Administration
mental monitoring in China. National and local moni-          detailed stipulations specifying what constitutes seri-
toring stations are classified into four levels (national,    ous pollution; however, in practice, the following fac-
provincial, municipal, and county) and are encom-             tors are generally considered when deciding upon
passed in a three-level monitoring network (national,         the issue:
provincial, and municipal). National monitoring sta-          q   Whether the total volume of the pollutants
tions are operated under SEPA, and local-level moni-
                                                                  discharged continuously exceeds relevant
toring stations are operated under the relevant EPBs.
                                                                  emission standards
Additionally, specialized environmental monitoring            q   Whether multiple types of pollutants are discharged,
networks have been established for major river sys-
                                                                  many of which do not easily degrade in nature
tems, marine areas, and agricultural environments.            q   Whether discharged pollutants and discharge rates
Every monitoring station must write monthly and
                                                                  constitute a threat to public health
yearly reports, as well as any other report requested by      q   Whether discharged pollutants have become a pub-
upper-level stations or superiors, and submit them to
                                                                  lic nuisance and have instigated dispute
the directly superior monitoring station for inclusion
in a more comprehensive report. Some large cities                Facilities located in or near natural reserves, historic
now provide daily environmental reports, made public          sites, scenic spots, or other locations under special pro-
via local media.                                              tection are less subject to flexibility based upon the
                                                              seriousness of the pollution and are more likely to
On-the-Spot Inspection                                        receive an abatement deadline as opposed to increased
                                                              levies. In cases where adequate financial resources and
   Both SEPA and local EPBs conduct on-the-spot               technical capacity are unavailable, enterprises are gen-
inspections of pollution sources to supervise the             erally shut down instead of receiving an abatement
implementation and enforcement of all requirements            deadline. The time limits for abatement deadlines gen-
stipulated by the relevant laws and regulations.              erally range from one to five years.
Supervision departments are established within both
SEPA and local EPBs to conduct such inspections,              Accident Reporting
levy fines for violations of laws and regulations, and
collect emissions fees. Enterprises under inspection             Environmental pollution accidents must be followed
have expressed concern regarding the confidentiality          by measures to control the pollution, inform nearby
of trade and enterprise secrets that may be discovered        communities that may be affected, and report to local
during the inspection process. Under the Tentative            EPBs. After an accident is reported, local EPBs must
Procedures on Environmental Protection Supervision,           report to local governments regarding further pollution
inspectors are required to maintain confidentiality in        control and emergency response measures. Local EPBs
regard to such secrets.                                       must also conduct on-the-spot investigations and collect
                                                              pertinent information to be applied to further prevention
                                                              and control measures. Accidents are graded into four
Abatement Deadlines
                                                              levels based on their seriousness; level three accidents
   Enterprises discharging pollutants in excess of rele-      must be reported to provincial EPBs, and level four
vant emissions standards over an extended period of           accidents must be reported to SEPA.
time, as well as pollution sources located in or near nat-
ural reserves, historic sites, scenic spots, or other loca-   Incentives
tions under special protection, may be required to carry
out pollution control measures within a prescribed peri-         Incentives such as tax deductions and waivers, spe-
od. The directive to impose an Òabatement deadlineÓ           cial funds, and honorable awards and certifications, as
can be handed down only by local governments, not by          well as certain disincentives, have been established both
EPBs. However, EPBs are responsible for impact                nationally and locally to encourage improved environ-
assessments, action plan evaluations, and implementa-         mental protection. Several examples of such incentives
tion supervision.                                             and disincentives are introduced below.
   When considering the imposition of an abatement            Import Tax and Value-Added Import Tax Waiver. In an
deadline, authorities take into account the seriousness       effort to accelerate foreign investment and promote the
of the pollution. If discharges in excess of standards do     import of advanced technologies and equipment, import
not cause serious pollution, enterprises may simply be        tax and value-added import tax on some pollution pre-
required to pay heavier emissions fees. There are no          vention and control products may be waived.


                                                                                       China Export Market Plan 31
Income Tax Waiver. Enterprises using certain industri-        Main Regulators of Environmental Protection
al waste products as major raw materials for new prod-
ucts may have their income tax on the sales of such           The National PeopleÕs Congress
products waived for five years.
                                                                 The National PeopleÕs Congress is the countryÕs
Adjustment Tax on Investment in Fixed Assets Waiver.
                                                              highest legislative body and holds exclusive authority in
Enterprises investing in fixed assets for the reuse of
                                                              enacting, amending, and interpreting the Constitution of
the Òthree wastesÓ (air, water, and solid wastes)
                                                              China, as well as all laws and policies pertinent to major
may have their adjustment tax on investment in fixed
                                                              aspects of national social and economic development.
assets waived.
                                                              Additionally, the NPC supervises the implementation of
Value-Added Tax Waiver. Enterprises using coal
                                                              laws and policies and determines appointments to posi-
gangue, stone coal, coal ash, and certain other items as
                                                              tions of central government leadership and the Supreme
raw materials to produce building materials may have
                                                              PeopleÕs Court and Supreme PeopleÕs Procuratorate.
their value-added tax waived provided that the recycled
                                                              About 3,000 representatives from the provinces, munic-
products constitute no less than 30 percent of the raw
                                                              ipalities, and autonomous regions are elected to the
materials in the production process. Enterprises using        Congress every five years and convene in Beijing once
wastewater and solid waste to process gold and silver         a year. The Standing Committee of the National
may have their value-added tax waived.                        PeopleÕs Congress is the working organization of the
Ban on Bank Loans for Outdated Products and                   Congress and maintains its authority and responsibility
Technologies. The SETC provides listings of outdated          while the Congress is not in session.
products and technologies that are heavily polluting or          Local peopleÕs congresses, which are maintained at
not energy efficient. Commercial banks bear legal lia-        the provincial, municipal, county, and township levels,
bilities for providing loans to facilities for the produc-    constitute the local regulatory bodies, are in charge of
tion or utilization of these listed items.                    local legislative issues, and determine the appointment
ÒExcellence in Environmental Protection Technology.Ó          of local government leaders. No standing congress
Environmental protection technologies meeting a num-          committees are maintained at the township level.
ber of criteria may be considered for SEPAÕs                     The Environmental and Resources Protection
ÒExcellence in Environmental Protection TechnologyÓ           Commission, a subsidiary organization of the Standing
title. SEPA awards the title on a yearly basis, and local     Committee of the National PeopleÕs Congress, is the
EPBs are charged with the popularization of the tech-         highest authority in charge of drafting laws and regula-
nologies. Enterprises must give priority to the utiliza-      tions pertinent to environmental and natural resources
tion of these technologies if feasible; otherwise, their      protection and supports the National PeopleÕs Congress
EIA or application for financial assistance will not          in overseeing the implementation of relevant legisla-
be approved.                                                  tion. The commission has three divisions: the general
Environmental Protection Certification. SEPA and              affairs department, the legislation department, and the
provincial EPBs confer environmental protection certi-        research department. Mr. Qu Geping, chairman of the
fication on environmental protection equipment and            commission, is currently a central player in regard to
facilities that are deemed suitable. SEPA issues, on an       Chinese environmental law and policy.
irregular basis, lists of equipment and facilities that are
considered important in environmental protection and
must acquire such certification. When conducting new,         The State Council
expansion, and renovation projects, enterprises must             The State Council is the central government body
use certified equipment and facilities. The conferment is     charged with the implementation of all laws and poli-
valid for three years and is renewable.                       cies and has authority over all sectors of national social
Environmental Labeling. In order to qualify for envi-         and economic development. It is comprised of a pre-
ronmental labeling, a product must uphold environmen-         mier, vice premiers, state councilors, ministers, a gen-
tal protection requirements throughout its life cycle,        eral secretary, and vice general secretaries. Leadership
from production to consumption to disposal. Environ-          positions are filled by appointment and are approved
mental labeling not only increases a productÕs competi-       by the National PeopleÕs Congress every five years.
tiveness but also provides consumers with an                  The State Council formulates administrative regula-
opportunity to support environmental protection by pur-       tions and policies based upon the Constitution and laws
chasing such products. Environmental labels are valid         of China and maintains the leadership role over all lev-
for three years and may be renewed upon reevaluation.         els of local government.


32 U.S. Department of Commerce, International Trade Administration
   In 1998, a large-scale restructuring of the State         between environmental protection and economic devel-
Council and its subsidiary ministries and commissions        opment remains among the ministries, and SEPAÕs less-
was carried out, followed one year later by the restruc-     er authority and financial capacity in comparison with
turing of all local governments. The restructuring was       the likes of SETC and SDPC remains something of a
aimed at increasing government regulatory and admin-         sticking point.
istrative roles and decreasing government roles in spe-         SEPAÕs vertical authoritative structure is also trou-
cific business issues. Additionally, it was intended to      blesome in that local governments exercise control over
reduce the bureaucracy and financial burdens that have       most administrative details within local EPBs. EPB
long been a serious barrier to the development of the        financing, personnel, daily administration, and so forth
country. As a result of the restructuring, the number of     are managed by local governments, while SEPA estab-
subsidiary organizations under the State Council has         lishes broad operative goals and administrative direc-
decreased from 40 to 29.                                     tives. As a result, local governments have more leverage
   Under the leadership of the State Council, provincial     to see that EPBs act in accordance with local govern-
and lower-level local governments function very much         ment interests as opposed to state-level SEPA direc-
like the State Council in regard to local social and eco-    tives. The administrative details of SEPAÕs operations
nomic affairs. They must report to both the local peo-       are a constant topic of policy-making discussion, and
pleÕs congress and the government body operating at the      further changes in administration, and possibly even
next-highest level of administration.                        structure, are to be expected.
                                                             The State Development and Planning Commission
Ministries and Commissions Influencing                       (SDPC). The State Development and Planning
Environmental Protection                                     Commission develops medium- and long-term social
                                                             and economic development plans (thereby defining the
    The following ministries and commissions influence
                                                             fundamental development goals for the country) and
the environmental protection sector and administer
                                                             supervises the implementation of those plans. Thus,
environmental protection measures within their official
                                                             SDPC exerts influence upon all social and economic
jurisdictions on a daily basis. Like most other ministries
                                                             sectors, including the environmental field.
in China, they are structured vertically, from the nation-
                                                                SDPC responsibilities include researching and
al level to the county and even the township level. Local
                                                             advising on the formulation of state economic and
bodies report to both the local government and their
                                                             social development strategies with an aim toward
upper-level counterparts.
                                                             maintaining a development balance and structural opti-
The State Environmental Protection Administration            mization; planning for resource development, energy
(SEPA). The State Environmental Protection                   distribution, and ecological and environmental protec-
Administration is the highest strictly environmental         tion infrastructure development; gathering and analyz-
administrative authority in China. Its responsibilities      ing development and economic indicators for the
include the drafting of laws, the issuing of regulations     financial and banking sectors; and proposing
and standards, the analysis and reporting of environ-        allocations of public investment funds and foreign
mental indicators, the supervision of nationwide envi-       capital funds.
ronmental legislation enforcement, and the development          The SDPC maintains significant influence over spe-
of pollution prevention policy and planning. In setting      cific projects in order to coordinate overall investment
environmental protection targets and developing plans to     in various sectors of the economy. However, following
meet those targets, SEPA works in collaboration with the     government restructuring, the commission, like all min-
Ministry of Construction, SDPC, and SETC, among oth-         istries, is intended to assume a more regulatory and
ers, and is responsible for overseeing the implementa-       administrative role, becoming less involved in the
tion and coordination of those targets in cooperation        determination and approval of specific projects and,
with the relevant institution and agencies.                  from a macroeconomic planning position, assuming an
   As part of the 1998 government restructuring plan,        increased role in encouraging investment and develop-
SEPA was elevated to the ministry level, representing a      ment by domestic and foreign institutions and compa-
theoretical strengthening of its authority. SEPA did         nies. At the same time, the State Council appears to be
relinquish much of its control over planning and policy      increasing the relative authority of the State Economic
for the environmental industry to SETC but is expected       and Trade Commission while slowly diminishing the
to increase its role in determining national policy and      authority of SDPC, which is viewed as a legacy of
objectives. Nonetheless, a perceived conflict of interest    ChinaÕs former planned economy.


                                                                                     China Export Market Plan 33
The State Economic and Trade Commission (SETC).             trade and economic climates and their impact on China,
The State Economic and Trade Commission is the most         approval and issuance of international trade and busi-
powerful regulator of daily national economic opera-        ness licenses, and regulation of the import-export mar-
tions, particularly in regard to industrial aspects. The    kets. MOFTEC is also the main government channel for
SETC influences most economic sectors directly or           bilateral finance cooperation and plays a key role in the
indirectly through implementing and supervising eco-        approval process for foreign investment.
nomic and social development plans. It is also respon-
sible for supervising and analyzing national economic       The Ministry of Construction. The Ministry of
trends, adjusting daily economic operations, establish-     Construction formulates regulations, policies, and plan-
ing short-term economic operational goals, policies,        ning with regard to municipal and township design and
and measures, and carrying out international coopera-       construction, the building industry, the residential hous-
tion efforts.                                               ing industry, architectural designing and consultancy,
   Additionally, SETC oversees the drafting and imple-      and the municipal public works industry. Additionally,
mentation of state industrial policies, plans investment    the ministryÕs responsibilities include, in cooperation
layout for competitive industries, drafts policy for        with other ministries, the formulation of construction
reforming state-owned enterprises, promotes enterprise      standards, construction budgets, and feasibility studies.
development, oversees project investment and financ-        Many aspects of infrastructure development, including
ing, oversees resource use and application, and coordi-     transportation, energy, communications, water treatment
nates environmental protection and the development of       and supply, and waste management, are directly or par-
environmental industry.                                     tially under the auspices of the Ministry of Construction.

The Ministry of Finance. The Ministry of Finance is         The Ministry of Science and Technology. The Ministry
the primary organization under the State Council            of Science and Technology formulates policies, strate-
charged with issues pertinent to state revenues and         gies, regulations, and planning with regard to the devel-
expenditures, financial policies, and taxation policies     opment of science and technology. Planning for and
(in conjunction with the State Taxation Administration).    promotion of scientific and high-tech research, as well
The Ministry of Finance, independently or in coopera-       as the facilitation of financing for scientific and techno-
tion with other government organizations, formulates,       logical research, are included in its responsibilities. The
implements, and supervises laws, regulations, strate-       ministry also plays a role in facilitating international
gies, policies, and planning pertinent to financial and     cooperation in scientific advancement.
taxation issues; conducts administration over the stateÕs      The Ministry of Science and Technology maintains
annual budget and expenditures, including the formula-      an innovation fund for small technology-based firms,
tion and implementation of plans for the expenditure of     which is the only ministry-furnished support fund at
state revenue, arrangements for state project invest-       least partially directed toward environmental protec-
ment, government purchase planning and policies, spe-       tion. Aimed at facilitating the transformation of scien-
cial financial accounts, and government foundations;        tific research achievements into technological
conducts administration over state debts, including the     innovations to benefit economic growth, the fund is
planning and issuance of state debts, as well as relevant   gaining in repute and capacity.
policies; conducts administration over the accounting
                                                            The Ministry of Land Resources. The Ministry of Land
and auditing sectors; conducts administration over
                                                            Resources regulates natural resource administration and
international loans via foreign governments, the World
                                                            is responsible for the protection and rational utilization
Bank, the Asian Development Bank, and other such
                                                            of land, mineral, marine (except fishery), and other nat-
institutions; conducts administration over the taxation
                                                            ural resources, as well as the supervision and pollution
of foreign-related operations, such as the taxation of
                                                            prevention of groundwater resources. The ministry also
imports and exports; and carries out planning pertinent
                                                            develops technology standards, procedures, and solu-
to financial research, education, and training.
                                                            tions for land, mineral, and marine resource use; drafts
The Ministry of Foreign Trade and Economic                  and implements general and specific land application
Cooperation (MOFTEC). The Ministry of Foreign               plans; and participates in preliminary city planning.
Trade and Economic CooperationÕs primary function is           The protection of landownersÕ and land usersÕ legal
the formulation and implementation of policies, laws,       rights and the investigation and resolution of land own-
and regulations concerning foreign trade and economic       ership and land use disputes fall under the jurisdiction
cooperation, which includes analysis of international       of the Ministry of Land Resources, as does the devel-



34 U.S. Department of Commerce, International Trade Administration
opment of international cooperation on land, mineral,         medicinal treatment of livestock is also carried out, in
and sea resources.                                            collaboration with other affiliated ministries.
                                                                 Township and village enterprises fall under the juris-
The Ministry of Communications. The Ministry of
                                                              diction of the Ministry of Agriculture. Industrial enter-
Communications formulates and implements strategies,
                                                              prises within this category are significant contributors
policies, and regulations with regard to land and water
                                                              to environmental pollution but generally remain outside
transportation and shipping. The ministry is charged
                                                              of the environmental protection apparatus. The few
with the maintenance of the public roads, highways, and
                                                              environmental statistics available on township and vil-
related facilities and fee collections. Similarly, the
                                                              lage industrial enterprises are compiled by the Ministry
development and maintenance of the water transporta-
                                                              of Agriculture.
tion and shipping infrastructure and the collection of
related fees fall within the ministryÕs jurisdiction.         The State Taxation Administration. Taxation policies
   The Ministry of Communications also supervises             and procedures, including the development of favorable
water transport and shipping safety, the inspection of        taxation policies to promote environmental protection,
ships and marine facilities, the prevention and control       and import-export taxation with and without regard to
of pollution caused by ships, and ocean emergency             environmental technologies and related incentive poli-
response.                                                     cies, all fall within the jurisdiction of the State Taxation
                                                              Administration. There has been some discussion, as
The Ministry of Water Resources. The Ministry of
                                                              noted above, regarding the possibility of transforming
Water ResourcesÕ responsibilities entail the formulation
                                                              pollution levies into environmental protection taxes and
and implementation of regulations, policies, and plans
                                                              shifting the jurisdiction over such funds to the relative-
with regard to water resources and efficient water use.
                                                              ly authoritative and administratively better organized
Water quality inspections, investment and management
                                                              State Taxation Administration.
plans, pricing, taxation, and administration of national
water and soil conservation, as well as flood and
drought prevention, are included.
                                                              Major Environmental Protection Laws
The State Forestry Administration. The State Forestry
Administration formulates and implements regula-              The Environmental Protection Law of the PRC
tions, policies, and development plans regarding
forestry and ecological conservation. Its responsibili-
                                                                 The Chinese government did not include environ-
ties include administration of the state forestation
                                                              mental protection in the Constitution of the PRC until
fund, forestation operations, soil erosion and desertifi-
                                                              1978, when it stipulated that the state protect and
cation alleviation, surveying and monitoring of nation-
                                                              improve the ecological environment, remedy pollution
al forest resources, and the approval and supervision
                                                              and other public hazards, guarantee reasonable use of
of forest resource utilization. Additionally, its jurisdic-
                                                              natural resources, and protect rare animals and plants.
tion enters the realm of biodiversity and endangered
                                                              The 1978 alteration of the Constitution became the
species. Administration over the protection and man-
                                                              foundation of detailed environmental legislation. The
agement of wild plant and animal species, including
                                                              NPC established the Environmental Protection Law on
endangered plants and animals, is included.
                                                              a trial basis in September 1979. The State Council fur-
International trade in both endangered and non-endan-
                                                              ther announced in 1983 that environmental protection
gered plant and animal species, international treaties
                                                              was to become a strategic task in the process of mod-
in regard to such species, and other international
                                                              ernizing China. Environmental protection was raised to
treaties relevant to the State Forestry Administration
                                                              the rank of national policy, second in importance only to
are included among its responsibilities.
                                                              family planning. However, environmental protection
The Ministry of Agriculture. The Ministry of                  was not integrated systematically into politics, causing
Agriculture formulates and implements development             some policies to have contradictory impacts on the state
strategies, policies, and regulations with regard to agri-    of the environment. An example was the household
cultural development. Additionally, it coordinates with       responsibility contract system, which stated that the
relevant ministries to promote sustainable agriculture,       right to use land belonged to farmers, while the state
sustainable utilization and protection of fisheries, and      was owner of the land and rural collectives were in
protection for aquatic life, grasslands, and wetlands.        charge of public interests. The Environmental
Supervision of fertilizer quality, animal husbandry, and      Protection Law of the PRC, effective on Dec. 26, 1989,



                                                                                        China Export Market Plan 35
helped to consolidate environmental directives in a          over water pollution caused by ships. The Ministry of
more systematic way.                                         Water Resources, the Ministry of Public Health, the
                                                             Ministry of Land Resources, municipal public works
The Marine Environmental Protection Law                      bureaus, and water resources bureaus coordinate with
of the PRC                                                   SEPA and local EPBs regarding water pollution protec-
                                                             tion and control.
    The Marine Environmental Protection law defines             Regarding river protection, SEPA, in conjunction
the respective roles of SEPA, the State Oceanic              with other relevant government organizations, is
Administration, the State Maritime Affairs Administra-       charged with drafting pollution prevention and control
tion (under the Ministry of Communications), the State       plans for the major state-designated rivers. Based on
Fishery Bureau (under the Ministry of Agriculture), and      these plans, provincial EPBs and other local govern-
military environmental protection organizations with         ment organizations draft pollution prevention and con-
regard to marine environmental protection. SEPA is the       trol plans for their respective sections of transprovincial
central coordinator and supervisor of marine environ-        and transcounty rivers. The plans are submitted to the
mental protection, and oversees prevention and control       State Council or provincial governments for approval.
of oceanic pollution caused by onshore sources.                 Local-level governments must incorporate the pro-
    The law stipulates that measures to protect, restore,    tection of municipal water resources, and pollution pre-
and preserve marine ecological systems and historic nat-     vention and control, into municipal development plans.
ural sites and landscapes must be taken. Natural marine      Focus is to be placed on the construction and improve-
reserves at the local and national level must be set up.     ment of water distribution and sewage systems and
Emergency response plans for marine pollution acci-          municipal wastewater facilities.
dents, offshore oil leakages, and enterprise-related pol-       Groundwater protection zones for drinking water are
lution issues are to be formulated, and implementation is    to be designated by provincial governments. The zones
carried out in accordance with such plans in case of acci-   are separated into graded levels, the most strict of which
dents. Pollution discharges from onshore sources to          disallows any wastewater discharge, tourism activities,
ocean areas must be evaluated and approved by local          swimming and other such activities, and new construc-
EPBs, in consultation with local oceanic bureaus, mar-       tion projects or expansion projects for non-water distri-
itime affairs bureaus, fishery bureaus, and military envi-   bution or non-water protection purposes. Any facility
ronmental protection organizations. Such facilities are      producing emissions within such a zone must be
not to be located within or in proximity to marine natu-     removed or undergo abatement measures.
ral reserves, major fishery zones, coastal scenic spots,
and other localities under special protection. Provisions    The Air Pollution Prevention and Control Law
and guidelines for EIAs related to both onshore and off-     of the PRC
shore marine-impacting construction, production, dis-
charging, and so forth are outlined in the law.                 The Air Pollution Prevention and Control Law of the
    Dumping standards and relevant evaluation proce-         PRC outlines the incorporation of air pollution preven-
dures are the jurisdiction of the State Oceanic              tion and control into the state economic and social
Administration. The State Maritime Affairs                   development plan. Total emissions control standards,
Administration has authority to enact compulsory meas-       air quality standards, and air emissions standards are
ures to prevent and control pollution associated with        established. Guidelines for the supervision and imple-
maritime transport and shipping facilities and has           mentation of laws and regulations, comprehensive uti-
authority regarding accidents associated with such facil-    lizations, scientific research on air pollution prevention
ities within PRC maritime territory.                         and control, forestation, and municipal beautification
                                                             are contained herein.
The Water Pollution Prevention and Control Law                  The most recently amended version of the law pro-
of the PRC                                                   vides more stringent guidelines in regard to emissions
                                                             control, thereby making it illegal to exceed relevant
   SEPA and local EPBs are in charge of the general          national and local emissions standards. Previously,
administration of water pollution prevention and             enterprises exceeding such standards were made to pay
control. Organizations under the Ministry of                 levies; under the new law such enterprises will be
Communications, charged with the administration of           fined, abatement deadlines may be imposed, and clo-
inland water and ocean transportation, have authority        sures are possible.



36 U.S. Department of Commerce, International Trade Administration
   The law also authorizes the State Council and SEPA            Stipulations aim to minimize the production of solid
to designate the following special regions for the imple-     waste, promote its reutilization, and, wherever possible,
mentation of more stringent measures:                         mitigate its harmful capacities. To do this, the state
                                                              encourages and supports clean production, comprehen-
q   Acid rain control and SO2 control zones
                                                              sive resource utilization, scientific and technological
q   Total emissions control zones for air emissions
                                                              research and development, and popularization of tech-
q   Key air pollution prevention and control cities (the
                                                              nologies suited to solid waste management.
    number of which is mandated to rise to 100 during
                                                                 To prevent and appropriately manage industrial solid
    the Tenth Five Year Plan).
                                                              waste, SETC in concert with other ministries must
   Crude lump coal containing high SO2 and soot con-          research, develop, and popularize techniques and equip-
centrations must undergo a washing process before use.        ment aimed at reducing the production of solid waste.
The sale of coal-burning devices unable to meet rele-         Additionally, lists of ÒbackwardÓ techniques and equip-
vant emissions standards is banned. Newly designed            ment are published, and the production, sale, and use of
urban structures depending on coal for fuel must              such items are outlawed.
include central heating facilities. Fireproof and dust-
proof coal storage facilities are requisite.
                                                              The Environmental Noise Pollution Prevention and
   The manufacture, sale, and importation of automo-
                                                              Control Law of the PRC
biles and ships failing to meet relevant emissions stan-
dards are banned. Provincial governments, when                   The Environmental Noise Pollution Prevention and
issuing new emissions standards for automobiles and           Control Law of the PRC charges government bodies
ships, must get approval from the State Council.              with the establishment and enforcement of environmen-
Provincial EPBs can authorize organizations to conduct        tal noise pollution standards. The law includes provi-
air emissions checks for automobiles and ships, and           sions for the prevention and control of industrial noise
local EPBs can conduct random examinations of auto-           pollution, construction noise pollution, traffic noise pol-
mobile emissions systems in parking lots.                     lution, and noise pollution caused by social activities. In
   Industrial enterprises discharging dust must take rel-     the cases of industrial and construction noise pollution,
evant preventive and control measures. Flammable              measures must be taken to reduce or dampen noise, and
gases must be reutilized if the relevant facilities are       time frames are to be established to further regulate the
available; otherwise, gases must be processed to reduce       allowance of varying levels of noise. In the case of traf-
pollutants prior to discharge. Measures to reduce sulfur,     fic-caused noise pollution, all motor vehicles, including
synthetic ammonia, and coal gas must be taken where           water vessels navigating inland bodies of water and rail-
applicable. Measures to control dust must be taken at         line locomotives, are to employ sound-dampening
construction sites.                                           apparatus and restrict the use of horns and sirens within
   In keeping with ChinaÕs commitment to the MontrŽal         the limits of the law. It is required that sound-dampen-
Protocol, measures to encourage the production and uti-       ing barriers be built in instances where traffic-related or
lization of substitutes for ozone-depleting substances        other sources of noise pollution cannot be brought with-
will be taken by central and local governments with the       in the limits of the law.
intention of phasing out the use of all ozone-depleting
substances.
                                                              Environmental Protection Policies for Western
The Solid Waste Management Law of the PRC                     Development

   SEPA is charged with the general administration of             The Chinese government has defined five key prior-
solid waste management nationwide. Other ministries           ities for the development of the poorer western regions.
coordinate with SEPA and conduct administration of            However, the development strategy is dichotomous in
solid waste management within their official jurisdic-        the sense that industrial and infrastructure development
tions, and local EPBs and government bodies fill their        are being strongly pushed while at the same time envi-
respective roles on a local basis. The Ministry of            ronmental protection and sustainable development will
Construction and local municipal public works bureaus         be maintained.
are in charge of the administration of collecting, sorting,       The potential for this development drive to cause
processing, storing, transporting, and disposing of           problems for the already desertified and polluted western
municipal solid waste.                                        areas is significant. Most western provinces suffer severe



                                                                                       China Export Market Plan 37
water shortages, and Lanzhou, the capital of Gansu             environmental monitoring and protection is developing
Province, is among the worldÕs most polluted cities.           within the legislation itself. At the same time, legal bases
   Industry is the foremost contributor to western pollu-      are being developed to promote and support cleaner pro-
tion. In comparison with industries in eastern and south-      duction, emissions trading, and market-based incentives,
ern cities, western industries are outdated, inefficient,      and a growing recognition of the need for legislation
and highly polluting. In addition, as coastal regions          regarding the comprehensive utilization of natural
attempt to clean up polluting factories by shutting them       resources exists. Finally, a definitive shift from concen-
down or charging steep fines, these same industries are        tration-related regulations and end-of-pipe pollution
pushed to the west, where pollution regulation and             control to a holistic approach to pollution control (man-
enforcement are more difficult. The hope is that greater       ifested in TEC) is undoubtedly taking place.
investment brings more efficiency to the region and that
closer government attention eliminates the frontierlike        Environmental Impact Assessment (EIA) Law
attitudes that have so far contributed to its deterioration.
   The government places a high priority on environ-              Major issues expected to be addressed by this new
mental protection, investing large amounts in tree- and        law include expanding the activities that require an EIA
grass-planting schemes to stabilize soil and water             to include the formulation of laws, the formulation and
resources. However, the western population consists            implementation of national economic and social devel-
mostly of rural farmers, among whom are ChinaÕs                opment planning, and the formulation and implementa-
poorest. Many of these people depend on farming as             tion of economic and technological policies; conducting
their primary source of income and on forest resources         EIAs at an earlier stage of the approval process; carry-
for cooking and heating. Most of their practices of irri-      ing out post-EIAs to regulate activities with a potential-
gation, agriculture, and forest resource use are highly        ly serious impact on the environment; and providing for
inefficient and have a heavy impact. Tree felling for          public disclosure of EIAs.
fuel contributes to massive desertification, poorly man-
aged irrigation leads to salinization and inefficient          Cleaner Production Law
water use, and improper use of fertilizer and pesticides
causes untold non-point-source environmental compli-              SETC is the leading authority regarding clean pro-
cations. It remains to be seen how the agricultural sec-       duction and the Cleaner Production Law, which may
tor will be ÒrestructuredÓ so that the members of the          have implications for new investment and facility
local population may retain their livelihood and in fact       upgrades. The latest draft (issued in July 2000) includes
better their practices.                                        procedures concerning the formulation of clean produc-
   The most pressing concern for the time being is the         tion standards, requires that evaluations of clean pro-
lack of water. Serious droughts afflict the region each        duction be incorporated into EIAs, established efforts
year, and water management is practically unheard-of.          for the promotion of clean production, and sets legal lia-
Unsustainable farming practices have taken root, and           bilities for violations of the law. The draft also provides
multilateral irrigation projects have not been successful      for the identification of enterprises with large produc-
outside of project bounds. If western development goes         tion potential but severe pollution problems and allows
as planned, the demand for water will soar. The govern-        for special measures to assist such enterprises in the
mentÕs solutionÑto divert water from the Yellow                development of cleaner production. In the meantime,
RiverÑcould have disastrous effects on regions of              pilot activities have been carried out in several indus-
southeastern China.                                            tries, among them petrochemicals and chemicals, steel
                                                               and iron, and light industries in Beijing, Tianjin,
                                                               Shenyang, Taiyuan, Jinan, Fuyang, Lanzhou, Shanghai,
Legal Trends in the Environmental Field                        Chongqing, and Kunming.

   As a result of amendments to the Air Pollution              Water Pollution Law
Prevention and Control Law, governments at all levels
must now include measures for atmospheric protection              The amended Water Pollution Law presently being
in all economic and social development plans. Similarly,       discussed by the State Council will most likely facilitate
the awaited environmental impact assessment law will           proper exploitation, effective use, and unified manage-
likely require EIAs to be included in the formulation of       ment of water resources with particular emphasis on
such plans. Thus, a more comprehensive approach to             water shortage, water pollution, and flood prevention



38 U.S. Department of Commerce, International Trade Administration
projects. It is also expected that the Water Pollution    State Environmental Protection Administration,
Law will be revised according to the same principles as   International Environmental Conventions and Treaties
the Air Pollution Law; however, details have not yet      Collection China Entered (Beijing: Xueyuan
been published.                                           Publishing House, 1999).

                                                          State Environmental Protection Administration, Local
Selected References and Web Sites                         Environmental Protection Regulations Collection
                                                          (Beijing: Xueyuan Publishing House, 1999).
References
                                                          Wang, Jin, The Principles of Chinese Environmental
Gan Shijun and Chen Yuxiang, eds., Sustainable
                                                          Law (Beijing: Beijing University Publishing House,
DevelopmentÑA Trans-Century Decision (Beijing:
                                                          2000).
Chinese Communist Party Training School Publishing
House, 1997).
                                                          Web Sites
Li Zhou and Sun Yanmei, Environmental Issues In
                                                          PeopleÕs Republic of China, State Economic and Trade
China (Henan: Henan PeopleÕs Publishing House,
                                                          Commission (Chinese only):
2001).
                                                          www.setc.gov.cn/
State Environmental Protection Administration, China
                                                          PeopleÕs Republic of China, State Development
Environmental Protection Agenda 21 (Beijing: China
                                                          Planning Commission (Chinese only):
Environmental Science Publishing House, 1995).
                                                          www.sdpc.gov.cn/
State Environmental Protection Administration, China
                                                          PeopleÕs Republic of China, State Economic and Trade
Environmental Protection Laws and Regulations
                                                          Commission (Chinese only):
Collection, Volume 1Ð4, (Beijing: Xueyuan Publishing
                                                          www.setc.gov.cn/bwlj/setc_bwlj.htm
House, 1997, 2000, 2001).




                                                                                 China Export Market Plan 39
                                                   Chapter 4
                                         The Water Sector


Per capita water resources in China are equivalent to        November 2000 State Council notice, the Notice on
only 26 percent of the world average. The northern           Strengthening Water Supply, Water Conservation and
part of the country is plagued by severe water short-        Water Pollution Prevention in Cities, stipulates that all
ages and the widespread contamination of most sur-           cities must build sewage treatment plants during the
face water and groundwater. The southern part of the         Tenth Five Year Plan and that all cities should have at
country, meanwhile, is subject to annual floods, in          least 60 percent of their sewage undergoing treatment
addition to its own widespread pollution. The Yangtze        by 2010 (70 percent in provincial capitals and major
River clearly delineates water resource disparities          tourist cities). Currently, according to recent statistics,
between North and South China; south of the Yangtze,         urban sewage discharges equal 137 million tons per
81 percent of the countryÕs total water resources face       day across the country, as much as 90 percent of which
serious pollution from upstream contamination, while         goes untreated.
to the north heavy industrialization and urbanization           Water-related exports in a number of subsectors have
contribute to the degradation and misuse of the              found markets in China, despite barriers. Table 4.1 lists
remaining 19 percent.                                        dollar values for these, serving as some indication of
   Water supply and quality constraints have prompted        current markets and future potential. Considering
the government to begin discussion of an immense             heightened awareness, the growing need for suitable
South to North water diversion scheme, intended to           water resources, and the increasing propensity toward
pump water from the Yangtze to drought-afflicted cities      the development of market-based tools and incentives,
such as Beijing and Tianjin in the North. The project        these numbers are likely to grow and the range of mar-
may offer opportunities to foreign technology                ket opportunities will increase.
exporters. That such a major project is underway indi-
cates the severity of water issues in the North.
   Over half of the Chinese population does not have         Policy Framework
access to potable water, and recently the government
                                                             Pricing and Market-Based Tools
conceded that there are no exploitable clean water
resources left anywhere in the country.                         According to the Notice on Increasing Wastewater
Overexploitation and misuse of groundwater in the            Treatment Fees and Establishing an Urban Wastewater
North have caused widespread declines in the water           Treatment System, issued in October 1999 by SDPC, the
table, and pollution often renders hazardous what is         Ministry of Construction, and SEPA, wastewater treat-
available. Although data are limited, it is thought that     ment fees shall be based on the operation and mainte-
overflowing septic tanks and leaking sewers contribute       nance costs of wastewater treatment plants. Effective
to much of the deterioration. Similarly influential is the   from Nov. 1, 1999, the wastewater treatment feeÑ
intrusion of pesticides and heavy metals from agricul-       based on volumeÑis combined with the water supply
ture and industry. Aquifers in coastal areas are experi-     fee and collected centrally; the actual fee is still subject
encing seawater intrusion and are becoming brackish as       to the influence of local conditions. Urban public utili-
a result.                                                    ty bureaus are in charge of fee collection, and waste-
   The state intends to focus considerable public envi-      water treatment plants receive an appropriate allocation
ronment and resource protection spending over the            of funds each month. Table 4.2 reflects the price
next decade on water supply, water treatment, and            changes of November 1999 in three key cities.
water pollution problems. Enormous investments and              As these fees were still too low to establish an incen-
changes in the enforcement of regulations can thus be        tive-based environmental protection scheme, the year
expected in the next few years. As an example, a             2001 saw additional price hikes.




40 U.S. Department of Commerce, International Trade Administration
Table 4.1 Water Treatment Products: U.S. Exports to China (FAS value in thousands of U.S. dollars)


HTS Number       HTS Description                                          As of April 2001               2000               1999


39269            Biofilm medium, woven fabric sheets                              16,490.1           39,314.7           23,609.2

46012            Erosion control matting, ecologically safe
                 ground covers                                                         0.0               53.8               70.3

560314           Manmade-filament fabric for wastewater
                 filtration                                                          275.7              737.3              434.7

591190           Environmental protection cloth                                    1,104.0            2,551.3            3,197.9

84136            Submersible mixer pumps to circulate
                 wastewater, sewage pumps                                            456.5            3,272.0            3,148.3

84137            Centrifugal pumps lined to prevent corrosion,
                 centrifugal sewage pumps                                          1,987.3           11,098.0            5,878.7

841381           Wind turbine pumps                                                4,481.1            2,628.7            1,772.0

842121           Filtering or purifying machinery                                 26,544.1           35,350.0           25,596.9

842129           Filtering or purifying machinery, other                           1,874.1            7,194.6            7,505.0

842833           Belt-type aboveground conveyors used to
                 transfer solids or slurries between plants                            7.7            1,736.8            3,285.5

84368            Hot-water weed-killing systems                                      250.9            1,047.0              260.2

847982           Agitators for wastewater treatment other than
                 kneading machinery                                                3,813.0            4,249.7            3,470.6

854389           Ozone production systems                                          9,756.8           32,243.5           11,619.3


Source: U.S. International Trade Commission, USITC Trade Database, www.dataweb.usitc.gov.



Current Concerns and Priorities                                      itate these, leaving municipalities and industries to search
                                                                     for creative means of financing requisite initiatives.
   Discharge of industrial and municipal wastewater rep-                In 1998, wastewater treatment projects accounted for
resents the top priority for the Chinese government.                 58 percent of pollution control spending, representing the
Non-point causes of water pollution such as the overuse              largest allocation of the environmental budget to an indi-
of fertilizers and pesticides are increasingly pressing              vidual sector. In 1999, overall environmental budget
issues that need to be addressed.                                    spending on wastewater projects was decreased to 52
   All government officials contacted for this study stat-           percent, with an increase in air pollution treatment. The
ed that China is focusing the bulk of its environmental              Tenth Five Year Plan (2001Ð2006) places more emphasis
initiative over the next few years on water projects,                on water conservation methods and supply infrastructure,
specifically in the Òthree lakes, three riversÓ areas (the           but the government continues to emphasize cleanup and
Huaihe, Haihe, and Liaohe basins and the Taihu, Chaohu,              antipollution measures.
and Dianchi Lakes). Changes in Chinese regulations                      Although issues of poor enforcement remain, the
include stepped-up requirements for water treatment                  power and acumen of local authorities are increasing. As
capacity; however, few or no funds are provided to facil-            an example, over 1,000 businesses in the Huai River area



                                                                                               China Export Market Plan 41
Table 4.2 Water Treatment Price Changes in Beijing, Guangzhou, and Shanghai


City              Date of Change         Type              Price per m3 before change                 Price per m3 after change


Beijing           November 2000          Residents         RMB1.60 (1.30 water+0.30                RMB 2.00 (1.60 water+0.40
                                                           pollution levy                          pollution levy)
                                                           $ 0.19 (0.16 water+0.04                 $ 0.24 (0.19 water+0.05
                                                           pollution levy)                         pollution levy)

                                         Enterprises       RMB 2.10 (1.60water+0.50                RMB 3.20 (2.40 water+0.80
                                                           pollution levy)                         pollution levy)
                                                           $ 0.25 (0.19 water+0.06                 $ 0.39 (0.29 water+0.10
                                                           pollution levy)                         pollution levy)


Guangzhou         May 2001               Residents         RMB 1.00 (0.70 water+0.30               RMB 1.20 (0.90 water+0.30
                                                           pollution levy)                         pollution levy)
                                                           $ 0.12 (0.08 water+0.04                 $ 0.14 (0.11 water+0.04
                                                           pollution levy)                         pollution levy)

                                         Enterprises       RMB 1.23 (1.05 water+0.18               RMB 1.52 (1.25 water+0.27
                                                           pollution levy)                         pollution levy)
                                                           $ 0.15 (0.13 water+0.02                 $ 0.18 (1.15 water+0.03
                                                           pollution levy)                         pollution levy)


Shanghai          December 2001          Residents         RMB 1.58 (0.88 water+0.70               RMB 1.73 (1.03 water+0.70
                                                           pollution levy)                         pollution levy)
                                                           $ 0.19 (0.11 water+0.08                 $ 0.21 (0.12 water+0.08
                                                           pollution levy)                         pollution levy)

                                         Enterprises       RMB 1.80 (1.10 water+0.70               RMB 2.00 (1.30 water+0.70
                                                           pollution levy)                         pollution levy)
                                                           $ 0.22 (0.13 water+0.08                 $ 0.24 (0.16 water+0.08
                                                           pollution levy)                         pollution levy)


Sources: Beijing Water Supply Company (http://finance.sina.com.cn); Guangzhou Water Supply Company; Shanghai Water Supply
Company (www.hwcc.com.cn).



were forced by local governments to close for environ-              with the wastewater output that goes largely untreated.
mental non-compliance in late 2000. By some estimates,              Meanwhile, municipal wastewater, in terms of total pol-
as many as 70 percent of those reopened within three to             lution, has more than doubled. Agricultural pollution is
six months. However, new regulatory initiatives are                 a worrying contributor, affecting not only lakes and
increasing demand for management systems.                           reservoirs but also groundwater and coastal areas.
                                                                    Control measures are often sporadic or ineffective.
                                                                    According to various sources, between 80 and 90 per-
Water Pollution and Market Prospects                                cent of wastewater still flows into ChinaÕs rivers and
                                                                    lakes without any treatment at all.
   Ten years ago, central water pollution control con-                 State targets aim for sewage treatment rates of 40
centrated on discharges by state-owned industrial                   percent by 2010, with daily treatment capacity
enterprises. Now, private enterprise overshadows the                increasing by 50 million to 60 million tons. This will
state-owned sector. Industrial output has swollen, along            require investments of as much as RMB 200 billion to



42 U.S. Department of Commerce, International Trade Administration
300 billion ($24.2 billion to $36.2 billion), excluding          The rate of municipal sewage treatment is estimated
operating costs.                                             to be around 10 percent to 13 percent per annum, clear-
                                                             ly an improvement over the rate of 4 percent in 1991 but
Industrial Discharge                                         still quite low. The World Bank notes that currently
                                                             installed municipal treatment facilities are only used at
   According to World Bank estimates, Chinese indus-         about 70 percent of capacity, supporting the view that
tries discharged over 20 billion tons of wastewater in       operators and municipalities need more training and
1999. Discharge rates rose sharply between 1990 and          management skills. The government plans to initiate
1995 and then declined through 1999 due to the eco-          rehabilitation programs and improve operation in many
nomic slowdown, restructuring, increased regulatory          of these existing plants.
effectiveness, and new measures for protection. A major
                                                             Market Opportunities. China began constructing large-
incident in the Huai River in 1994 prompted a series of
                                                             scale municipal wastewater treatment plants in the
emergency measures and several national regulations,
                                                             1980s. According to one industry authority, there are
including the closure of 15 categories of TVIEs
                                                             currently only 178 large-scale, modern municipal
throughout the country.
                                                             wastewater treatment plants in the country, with about
   Nevertheless, little progress in regard to more
                                                             100 more under construction. The government hopes to
conventional approaches to industrial wastewater
                                                             increase the total number to 1,000 by 2010 and plans to
management was made during the 1990s. The enforce-
                                                             invest over RMB 15 billion ($1.8 billion) in order to
ment efficacy of EPBs at the local level remains want-
                                                             raise the rate of treated urban wastewater to at least 50
ing, and Chinese industries continue to install
                                                             percent within the next decade. In key cities such as
treatment facilities to meet requirements and then shut
                                                             Beijing, the goal for the rate is set still higher, at 70 per-
them down when not monitored in order to save on
                                                             cent to 80 percent.
operation costs.
                                                                According to several sources, the Ministry of
   In addition, although the proportion of treated indus-
                                                             Construction is restructuring the water treatment sec-
trial discharge rose considerably throughout the 1990s,
                                                             tor. Officials indicate that the state will sell operating
the quality of that treatment declined, often falling
                                                             licenses for city sewer systems, water distribution, and
below Chinese standards. This supports the conclusion
                                                             water treatment. Businesses will still be state regulat-
that, although increasingly comprehensive regulations
                                                             ed and state owned, but not majority owned. This
are in place regarding discharge treatment, facilities are
                                                             should significantly increase foreign firmsÕ access to
often of low quality and management and operations
                                                             profitability.
skills are tremendously lacking.
                                                                Late 2000 saw the approval of ChinaÕs first domestic
                                                             build-operate-transfer (BOT) municipal sewage treat-
Municipal Discharge                                          ment project. The Beijing Sangde Environmental
                                                             Protection Industry Corporation will invest in, con-
   In 1998, officials at SDPC estimated that the urban       struct, and operate two sewage treatment plants in
population of China comprises about 36 percent of the        Xiaojiahe and Tongzhou. In mid-2001, the Beijing
nationÕs citizens. In an effort to manage a host of envi-    Sound Environmental Protection Enterprise Group
ronmental and resource-related issues, the government        committed to building sewage treatment plants in a
intends to increase that number to about 45 percent.         dozen Chinese cities using the BOT model. Service fees
However, current and planned municipal sewage sys-           paid to companies operating the plants following con-
tems lack the capacity to manage the accompanying            struction will service the debt incurred by the Sound
increased waste. Upgrades in both capacity and quality       Group, which expects to recoup investment and begin
of treatment are required, as are vast extensions and        turning profits after the first 10 years of operation.
renewals of sewer pipelines and other support systems,          Foreign investors with both the financial resources
many of which date from the 1950s.                           and the capacity to enter long-term markets may be able
   Interestingly, although the total sum of wastewater       to devise favorable arrangements for investment. A
flows and COD loads (from industrial, municipal, and         number of foreign companies are already engaged in
agricultural sources) increased only slightly in the past    water management projects, which, although they are
10 years, municipal wastewater as a proportion of total      not currently generating significant profits, are allowing
discharges nearly doubled in volume and impact. In           for market entry, pilot project development, network-
large urban centers, municipal wastewater surpassed          ing, and other key preliminary steps to large-scale
industrial contributions for the first time in 1998.         market entry.


                                                                                       China Export Market Plan 43
 Box 6. PACT Case Study
 PACT is an engineering company specializing in the custom design, manufacturing, and contracting of water treatment, waste-
 water treatment, and membrane separation equipment. PACT China acts as a WFOE that conducts design and construction
 activities primarily for foreign industries operating in-country.
    Although the bulk of current PACT projects are for foreign multinationals, the company is moving toward the Chinese mar-
 ket. The management believes that economic and market factors are slowly changing, thus making such a move possible;
 Chinese end users are increasingly willing to purchase JV or WFOE wastewater management products because they believe
 the additional costs of higher-quality products are worthwhile over the long term.
    Unlike Vivendi, Suez-Lyonnaise des Eaux, Thames and Bovis, and other large conglomerates, PACT pursues a smaller sub-
 set of projects, utilizing an Òeconomies of scaleÓ principle in order to maximize profits. The majority of its projects are com-
 pleted for considerably lower fees than would normally be received for similar operations in the U.S. However, many of the
 materials and pieces of equipment are manufactured in China, and by increasing market size as a result of reduced retail prices,
 PACT has managed to increase its client base and balance its expenditures.
    As one PACT representative sees it, multinationals tend to use criteria such as references, financial stability, and success-
 ful reputation when choosing a contractor. However, personal relationships are most often the deciding factor when Chinese
 parties are investing in water treatment projects.
    All in all, the company feels strongly that, despite some difficulties, PACT has already developed a reasonably strong mar-
 ket presence, something widely seen as a key for success in this developing market.


   Smaller-scale exporters, particularly those not look-            industrial COD loads in some farming regions. A World
ing to invest in the market long-term, might look to                Bank study estimated that livestock production in
these investors for marketing opportunities. There is               Chengde might account for 80 percent of its current
also reason to believe that domestic investors in water             industrial COD load. Unfortunately, little data exists on
management (for instance, those mentioned above, or                 the issue of non-point pollution, and few prospects for an
local governments in relatively affluent areas) may                 improved situation in the near future present themselves.
begin to provide increasingly viable markets for such
                                                                    Market Opportunities. The governmentÕs role in direct-
exporters. As demand for water management increases
                                                                    ing farming activities appears to be declining, making
and local budgets and central financing continually
                                                                    agricultural and livestock runoff more difficult to control.
shrink, investors will seek better long-term values when
                                                                    Current efforts seem to focus on identifying the sources
making investments. According to one domestic expert
                                                                    of problems, which will involve increased water quality
in the field, some in the industry are finally waking up
                                                                    monitoring and more elaborate and complete analyses of
to the fact that an initial investment in more expensive
                                                                    data. However, the current monitoring system is in disar-
but higher-quality equipment is more viable than pur-
                                                                    ray, and both SEPA and the Ministry of Water Resources
chasing poorer-quality domestic materials and then cov-
                                                                    maintain separate monitoring systems with little coordi-
ering maintenance costs down the line.
                                                                    nation. Additionally, the location of stations, the frequen-
                                                                    cy of sampling, and issues involving other methods and
Erosion, Agriculture, and Livestock Runoff                          standards must be overhauled in order to generate an
                                                                    accurate overview of the state of water within China. The
   Non-point water pollution resulting from fertilizer and          government is hoping for a complete overhaul to upgrade
pesticide runoff, intensive livestock production, soil ero-         existing monitoring capabilities, including extensive
sion, and other agriculture-related factors are exacting            investments in technology and equipment.
significant tolls on ChinaÕs ecology and can be expected               Additionally, the government is seeking innovative
to increase in severity due to difficulties in prevention           and large-scale solutions, such as prevention of soil loss
and enforcement.                                                    and degradation, improved irrigation schemes, and recla-
   Nutrient-rich runoff, low-quality fertilizers, and soil          mation of livestock wastes for fertilizer use. (See Chapter
erosion are contributing to the growing eutrophication of           8 for further details on management of resources.)
major water bodies. Overapplication of pesticides and the
use of hazardous pesticides are responsible for significant
contamination of groundwater, the detection of pesticides           Water Supply and Market Prospects
in a variety of Chinese foods, and the degradation of over
13 million hectares of cropland. Untreated livestock                  According to 1999 statistics, the amount of ground-
wastes already account for a disproportionate amount of             water extracted in China totals more than 100 billion


44 U.S. Department of Commerce, International Trade Administration
Table 4.3 Total National Investment in Antipollution Projects, 1999

                      Projects Under             Completed Investment                            Investment in
                      Construction               in Antipollution Projects                       Wastewater Treatment

National Total        14,374                     RMB 12,204.61 billion                           RMB 7,167.94 billion


Source: Chinese Statistical Yearbook, 1999. (Available online at www.stats.gov.cn/english).


tons annually, accounting for more than 20 percent of                     Throughout China, small to medium-sized cities need
total water use in the country, in comparison with the 2                  technologies custom-tailored for size, economic, and
to 3 billion tons extracted per year in the 1960s. Serious                logistical requirements. As investment opportunities
overextraction of groundwater is resulting in significant                 increase, the ability to provide Òtotal water manage-
effects such as subsidence at rates exceeding 25 to 40                    mentÓ is also important.
millimeters per year in some cities. The groundwater
tables of more than 100 cities are declining at a rate of                 Industrial End Users
2 to 3 meters per year. In coastal cities of eastern China,
the continued water table decline has caused more than                       Increasingly, industries find the water in their areas
1,500 square kilometers of seawater intrusion into                        too polluted to use in manufacturing processes or for
underground reserves.                                                     aquaculture purposes. The pharmaceutical, food-pro-
   Inefficient use of the limited water supply exacer-                    cessing, and fish-farming industries are only a few of
bates the countryÕs situation. China recycles only 20Ð30                  those affected by this development. On-site water
percent of its industrial water, and consumption per                      purification systems are thus sought out, and demand is
industrial product is 13 times higher than in the United                  increasing. As both private and state-owned enterprises
States. Similarly, only 25Ð30 percent of irrigation water                 are increasingly subjected to the demands of intensify-
is effectively utilized due to the inadequacy of most irri-               ing market competition, Chinese industries investing in
gation schemes. It is estimated that 2.5 million tons of                  such systems may once again find it wise to acquire
potential grain yield are lost each year due to inefficient               more expensive, higher-quality equipment rather than
water usage.                                                              cover the costs of maintaining lesser-quality equipment
                                                                          over the long term.
Municipal End Users                                                          According to Tenth Five Year Plan targets, industrial
                                                                          water use increases will be stabilized at 1.2 percent per
   Following the lead of cities such as Tianjin, Beijing                  annum, while the volume of industrial water that is
introduced its first water conservation mandate, as well                  recycled and reused will increase by 60 percent, again
as a water resources committee headed by the mayor, in                    producing demand for both equipment and management
December 2000. Under the new regulations, retailers                       skills. The government has also announced aggressive
selling flush toilets with a volume of over nine liters are               plans in the aquaculture sector to reduce waste, result-
fined, as are car-washing facilities that do not install                  ing in the implementation of water-saving and water-
water-saving or water-reusing devices. Coupled with a                     reuse technologies. Hotels and housing developments
water price hike, these measures have already helped                      also need water treatment systems to service their
boost sales of water-efficiency devices such as low-                      own needs.
flow showerheads and taps. Nanjing, Guangdong, and a                         Equipment suppliers should find the most receptivity
number of other municipalities announced water-saving                     to their products among multinationals, JVs, and
rules in 2001.                                                            WFOEs. While the importance of quality and the mer-
   The services and equipment most needed by local and                    its of foreign technology are increasingly important,
municipal governments are both high- and low-technol-                     cost differentials and local protectionism continue to
ogy products, including monitoring systems, pumps,                        influence a considerable percentage of Chinese end-
valves, detection devices, and aerators. Guangdong                        user demand for some time to come. As stated through-
Province, for example, is installing a world-class water-                 out this report, there are indications that this is
monitoring system over the next 10 years with an invest-                  changing; nonetheless, the changes will be slow
ment of over RMB 450 million (about $54 million).                         in coming.



                                                                                                  China Export Market Plan 45
Sales Prospects, Technology, and Equipment                    families would pay more for a unit that was known to be
                                                              first-rate if it was assured to stand up to several years of
   Despite the fact that it is more expensive than that of    use with low-quality Chinese water and if replacement
domestic competitors, U.S. technology (along with that        or servicing of core parts was available and affordable.
of Germany and France) is recognized throughout
China as being high quality and state of the art. On a
number of occasions, in implementing demonstrations           U.S. Market Share in Large-Scale Investments
of high-tech water treatment infrastructure and facili-       and Foreign and Domestic Competition
ties, attempts have been made to secure as much U.S. or
other foreign technology and equipment as possible. If           There is fierce competition in the Chinese water
this is any indication of future market trends, demand        treatment and supply market. Leading companies, such
for foreign equipment may rise.                               as FranceÕs Degremont, utilize worldwide subsidiary
                                                              networks to obtain projects involving bilateral financ-
                                                              ing. These projects require a large initial investment,
Water Monitoring Equipment
                                                              considerable time to generate returns, and significant
   The U.S. remains strong in the field of water moni-        experience in large-scale water infrastructure develop-
toring equipment sales and operational training. China        ment. Similarly positioned operators include FranceÕs
desperately needs methods to gauge the extent of its          OTV, HollandÕs DHV, GermanyÕs Siemens, BelgiumÕs
water problems accurately and to monitor the effective-       Seigas, and a number of other German, Austrian, and
ness of treatment and projects. Monitoring equipment          Spanish companies (see Table 4.4).
and management remains a key sector for U.S. manu-               Additionally, U.S.-based ITT Industries and its
facturers, as Chinese production in this sector is lacking.   Chinese JV partners announced in November 2000 two
                                                              contracts in different provinces to supply water pumps
                                                              at a cost of almost $1.8 million. The operations of
Turnkey Solutions to Large-Scale Water
                                                              PACT (see Box 6) are also of significance for smaller-
Treatment Problems
                                                              scale operations.
   Many authorities and enterprises cite the need for            Multilaterally financed projects represent the largest
ÒturnkeyÓ solutions. Strong competitors in the water          opportunity for U.S. firms. However, companies that
market must provide solutions tailored to the individual      want access to these opportunities must monitor devel-
needs and requirements of the client, be it a municipal-      opments long before project bids are announced. Most
ity, an economic zone, or an industry. The most suc-          deals in the water industry, and for that matter in almost
cessful foreign companies in water infrastructure have        every industry in China, are the result of serious inves-
invested heavily in China, are in the market for the long     tigation and long-term pursuit.
term, and maintain some degree of in-country presence.           In addition to the major multilateral institutions, such
                                                              as the World Bank and the Asian Development Bank,
                                                              there are a variety of domestic and internationally sup-
Home Water Filter Systems                                     ported programs that focus on water treatment infrastruc-
   A plethora of home water treatment and filter systems      ture in China. Of particular interest to the water industry
exists in department stores and retail shops. However,        are the Trans-century Green Project Plan (1997Ð2012), in
quality treatment systems are not affordable or in some       which approximately 50 percent of all projects are water-
cases even available; thus, most home- or apartment-          related, and the Center for Environmentally Sound
owning families purchase Chinese-made filters of low          Technology Transfer (CESTT), sponsored by ChinaÕs
quality. Research indicates that the majority of Chinese      Ministry of Science and Technology.




46 U.S. Department of Commerce, International Trade Administration
Table 4.4 Examples of Large-Scale Investors in Chinese Water Management

Country                Company                      Investment Amount and Project Locations

France                 Suez-Lyonnaise des Eaux      Total investment: $120 million, including $28 million for
                                                    Shanghai Huangpu River project
                       CGE                          Total investment: $780 million for projects in Huizhou
                                                    (Guangdong Province), XiÕan, Shanghai, Tianjin, Chengdu, and
                                                    other areas
                       Degremont                    Investment in 50 water treatment systems in Beijing, Guangdong,
                                                    Hangzhou, and other areas
Germany                Siemens                      Has invested or capitalized on aid finances in excess of
                                                    $300 million
United Kingdom         Thames Water and Bovis       $68 million for Shanghai water treatment project; $25 million for
                                                    Guiyang water supply system
                       Anglian Water                Total investment: $16 million
United States          Nalco Chemicals              $3 million for Suzhou project
                       Lemna International          $120 million for Guangzhou Xilang project

Source: Xin Kuai Bao, August 5, 2000.



Selected References and Web Sites                         ÒToxic Water Tragedy in Liaoning Province.Ó
                                                          Guangzhou Daily, Sept. 6, 1999.
References
                                                          ÒWater Damaged: Pollution Ravages China Rivers:
ÒChina Will Establish Real-Time Water Monitoring          Urban Waterways Hardest Hit.Ó ChinaOnline, Aug. 3,
System on Big Rivers.Ó China News Service. Jan. 18,       2000.
2001.
                                                          ÒWater Pollution Threatening Water Supplies in Cities.Ó
ÒEnvironmental Pollution Costs China RMB 283 bil-         Beijing Youth Daily, July 3, 2000.
lion per Year.Ó Huasheng Monthly. Oct. 10, 2000.
                                                          Web Site
ÒFirst Water-Use Rights Deal Completed in Zhejiang.Ó
ChinaOnline, Feb. 22, 2001.                               www.H20-china.com www.h2o-china.com. (Provides
                                                          information, particularly news translations, related to
ÒMainlandÕs Largest Wastewater Treatment Plant Starts     water projects and the water treatment industry in
Operation.Ó ChinaOnline. Mar. 26, 2001.                   China.)

ÒTapping into an Outside Source: UK to Give
US$10.88M to Aid in Water Shortage.Ó ChinaOnline.
Sept. 15, 2000.




                                                                                    China Export Market Plan 47
                                                  Chapter 5
                                  The Solid Waste Sector


In general, Chinese municipal solid waste collection        Management Law, pre-1996 municipal waste regula-
systems, although somewhat obsolete, are reliable and       tions, and the 1997 Hazardous Waste Management
maintain a consistent level of sanitation. In contrast,     Regulations.
transfer and disposal systems are inefficient and of poor      The responsibility for municipal solid waste collec-
quality, endanger public health, contaminate groundwa-      tion and disposal rests primarily with municipal and dis-
ter, and consume already scarce amounts of arable land.     trict governments (districts are semi-autonomous
   Due to a combination of scarce funds, inadequate         subunits of a city). Municipal solid waste management
infrastructure, poor enforcement of disposal and treat-     administrators, refuse collectors, street sweepers, and
ment standards, a lack of skilled waste facility opera-     refuse transportation and disposal personnel are all gov-
tors, and the inability of local companies to produce       ernment employees.
modern waste management equipment, the explosive               Municipal solid waste management is funded direct-
growth of solid waste produced annually in China            ly by the municipal government. A uniform tariff on
threatens to overwhelm the infrastructure and become a      waste collection and treatment has yet to be established,
severe economic and environmental burden.                   but in some cities residents are charged a fraction of a
   By the end of 1999, Chinese cities produced 940          percentage of their monthly income for this service.
pounds of trash per person annually, with that rate         Waste collection fees cover only a portion of the cost of
increasing by 8Ð10 percent each year. Disposal methods      managing the waste. Commercial waste is managed in
are so inadequate that over 200 of more than 650 cities     conjunction with residential waste, while industrial
surveyed are surrounded by hills of waste. As of August     waste is supposed to be managed separately by the
1999, more than 6 billion tons of municipal refuse had      industry that generates it.
accumulated and claimed 5.4 billion square feet of land        Several entities at the municipal level are responsible
in China.                                                   for solid waste treatment. These include municipal san-
   Over half of the municipal solid waste in China is       itation bureaus, EPBs, municipal construction bureaus,
composed of organic content such as food wastes, and        and municipal planning and development bureaus.
plastics and polystyrene compose the majority of the           The municipal sanitation bureaus are responsible for
bulk, as most metals and other resalable materials are      daily waste collection, transportation, and centralized
scavenged.                                                  garbage treatment including landfills and incineration
   China generated between 600 and 750 million tons of      plants. These bureaus control solid waste collection,
industrial solid waste in 1999. Hazardous waste statis-     transfer, and treatment technologies and equipment. The
tics vary wildly, but estimates range between 5 and 30      municipal EPBs are responsible for the issuing of local
million tons annually, much of which goes untreated.        solid waste control regulations, compliance monitoring,
Hazardous wastes are often incinerated and disposed of      and enforcement. Municipal construction bureaus plan
improperly and are frequently mixed in with non-haz-        and manage construction projects including the estab-
ardous waste in landfills and dumps. China hopes to         lishment of landfills and incineration plants. The munic-
improve its management of hazardous wastes by devel-        ipal planning and development bureaus coordinate,
oping facilities, training workers, increasing awareness,   evaluate, and approve solid waste treatment projects.
and at some point implementing international hazardous
waste standards.                                            Government Priorities and Trends
                                                               Since the second half of 1999, 10 cities and
Waste Management Legislation                                provinces have initiated tariff systems for waste dispos-
and Policy Priorities                                       al, among them Beijing, Chengdu (Sichuan Province),
                                                            Nanjing (Jiangsu Province), Shenyang (Liaoning
  Fundamental waste management legislation in the           Province), and Zhuhai (Guangdong Province). In
PRC consists primarily of the 1996 Solid Waste              Beijing, for example, households with permanent resi-


48 U.S. Department of Commerce, International Trade Administration
dents must pay RMB 3 ($0.36) monthly, and households                 goods except through international projects, innovative
with non-permanent residents RMB 2 ($0.24) monthly.                  schemes formulated by equipment suppliers, and possi-
   The national government has also expressed support                bly technology and financing consortia.
for the Òpolluter paysÓ scheme used in most developed                   Although private investment remains unattractive
countries. In line with this, China plans to levy an                 into the near future, timely market positioning is key.
industrial solid waste generation and disposal fee on                Precisely because waste management services in
plants and enterprises and an urban domestic refuse                  China have not yet become mainstream, now may be
treatment fee on citizens. These fees will be used to                the best time to begin a market positioning strategy.
finance solid waste infrastructure. However, for the next            After this sector begins to become profitable, those
few years, funding for waste projects will remain                    companies that have been nudging the doors open for
unavailable except through multilateral or bilateral                 several years are likely to reap the greatest benefits,
agencies, as heavy priority is being placed on water and             provided they have ample funding to wait out the mar-
air pollution projects.                                              ket developments. This will certainly require active
   The use of market-based instruments has not been                  and persistent effort.
sufficiently developed to make public utilities projects
such as waste management economically feasible for
municipalities or attractive for private investment. Thus,           Waste Reduction and Recycling
the domestic prioritization of air and water management
has left local governments in perpetual search of foreign               As is the case in many developing countries, ChinaÕs
funding in order to meet their waste management needs.               best hopes for environmentally friendly and practical
Until such measures as fee-based waste disposal become               solutions to its immense waste management concerns
profitable, there will be little market for high-technology          lie largely in the reduction of waste. There is much dis-

Table 5.1 Solid Waste ManagementÐRelated U.S. Exports to China (thousands of U.S. dollars)

                                                                                    As of
HTS Number        HTS Description                                                 April 2001           2000           1999

84178             Waste incinerators                                                  766.2             3,322.9        827.8
84179             Parts for 84178                                                   1,459.3            14,155.4       7,317.4
842220            Machinery for cleaning and drying bottles and containers             70.1              410.4        1,372.2
846291            Shredders, balers for metals, hydraulic presses                      69.4              375.9         231.0
847290            Paper shredders                                                     624.3             4,570.0       4,155.7
84741             Waste foundry sand reclamation equipment                          1,225.7             1,530.8       1,694.9
847432            Asphalt-recycling equipment                                               0.0            70.0       2,240.9
847989            Radioactive waste presses, trash compactors                      29,864.4           196,572.2     112,721.1
84799             Parts for 847989                                                 12,550.5            48,727.9      40,740.1
85059             Electromagnets                                                      247.5              899.2         894.7
851410            Electric or resistance-heated waste incinerators or other
                  waste treatment appliances                                        1,584.9             4,104.7       4,689.0
851420            Electric, induction, or dielectric waste incinerators or
                  other waste treatment appliances                                          8.4          810.1         330.3
851430            Electric, other waste incinerator or other waste
                  treatment appliances                                              9,484.6            24,095.3       4,913.6
851490            Parts of waste incinerators                                       3,141.2             6,330.0      10,815.9


Source: U.S. International Trade Commission, USITC Trade Database, www.dataweb.usitc.gov.



                                                                                                  China Export Market Plan 49
cussion now of sustainable development through an                The government encourages recycling but has not yet
integrated approach to waste management, including            generated the momentum that could arise through
minimization of the production of wastes and maxi-            awareness and a well-developed market. Tax incentives
mization of waste recycling and reuse. Throughout             have been implemented to support enterprises engaged
China, cities have been formally practicing source sep-       in recycling, and greater emphasis on source separation
aration and recycling for the past 10 years, and infor-       is considered desirable, particularly the separation of
mally for a much longer period.                               plastics from organic material, in order to make both
    With the exception of large cities, municipally-fund-     composting and incineration of residuals more viable.
ed recycling systems are limited in most Chinese
locales. Typically, however, the percentage of recycla-       Best Sales Prospects
ble waste is lower than in developed cities of analogous
size, due to lower consumption rates and a brisk trade in     Battery Recycling. Management of products such as
reusable and recyclable materials.                            glass, paper, cardboard, drums, containers, and so forth
    Recyclable items are bought and sold in the streets of    is adequate, but there is a complete lack of know-how
China. Refuse collection containers, drop-off points,         regarding battery recycling and that of other hazardous
and landfills are continuously scavenged for recy-            commodities. Chinese cities have launched battery-
clables. Middlemen purchase recyclable items based on         recycling programs and have collected millions of dis-
an established market value, then in turn sell the items      posable batteries. However, there is no feasible
to additional middlemen who deal in specific classes of       recycling or disposal program for those batteries, which
items, such as glass. End buyers include recycling facil-     usually end up buried in disposal sites in order to limit
ities and factories that can use the recyclables directly.    the area of contamination. Since the most common bat-
    China is also experiencing an upsurge in waste            teries in China are still mercury-lead, the challenge and
imports for recycling from other countries, including         need for recycling is significant.
waste paper and scrap metals. However, recognizing
that these imports are relatively expensive and often         Metals and Components. Recycling, compared with
contaminated, policy-makers are determining that it           other waste management sectors, generates a quicker
would be more cost-effective and safer to recover             return on investments. However, as in developed coun-
domestic materials. Regardless, the recovery industry         tries, the truly profitable recycling enterprises are those
will soon be expected to cope with significant increases      such as metals and electronic components recycling.
in recyclable materials; it may not be capable of decon-      Larger recycling facilities with more financial resources
taminating or reprocessing those materials due to a lack      may be able to purchase foreign equipment or form JVs
of capacity and possibly saturated markets.                   to take full advantage of this, and larger manufacturers
                                                              with the requisite financial resources may be able to
                                                              establish in-house facilities to do so. Smaller enterpris-
Municipally-Sponsored Recovery
                                                              es and municipal recycling facilities might not be able
   Waste recovery and recycling procedures are admin-         to do this, and may have no choice but to rely on local
istratively supervised in both private and state-owned        equipment manufacturers to outfit their facilities due to
enterprises. Many major cities have large recovery com-       both local protectionism and a lack of funds.
panies that collect recyclables from offices, institutions,   Materials Recovery. According to one multinational
and factories. Neighborhood deposit/trade centers are         health, safety, and environment specialist, a consider-
often located at transfer stations, where people can sell     able amount of reasonably useful industrial waste mate-
recyclable bottles, paper, and clothes. State policies        rial is stockpiled throughout the country, and is neither
govern the trading of materials and prices, and these         moved nor disposed of. Companies do not wish to write
companies are often inefficient.                              these resources off, as this reduces earnings, but there is
   Private enterprises, of which there are thousands,
                                                              currently no opportunity or push to reuse the material or
also participate in recycling, mostly in the southeastern
                                                              search out secondary markets. This may change as
provinces of Guangdong and Zhejiang. In the past few
                                                              dumping regulations and fees become more stringent
decades, there has been a shift to trading in mainly
                                                              and enforcement is improved.
profitable recyclables, such as metals, rather than in
most household wastes. Other materials are now col-              The recycling and materials recovery industry is one
lected and traded by private entrepreneurs, who may           area that the Chinese government intends to foster.
sell either to the government companies or directly to        China has traditionally been successful with this con-
factories for reuse.                                          cept despite the fact that the proliferation of plastics and


50 U.S. Department of Commerce, International Trade Administration
polystyrene has done marked damage to the pre-1970s              Other important areas are pre-treatment and waste
mentality of reuse. Nonetheless, due to funding prob-         processing. Before delivery to an incinerator or landfill,
lems and materials costs, China is always open to new         waste in most industrialized countries is sorted by type
methods of recycling that help achieve profitability or       and then treated in order to maximize disposal efficien-
reduce costs.                                                 cy. Most sorting in China today is performed at the dis-
                                                              posal site by scavengers and workers, with little pre-
                                                              treatment, making disposal not only inefficient but
Collection and Transfer Equipment                             also hazardous.

    The process of waste collection in ChinaÕs large
                                                              Street Sweeping
cities is generally effective. In contrast, however, due to
outdated equipment and a scarcity of vehicles, waste             Most Chinese cities provide street-sweeping services
transfer processes are poor and inefficient. Almost 10        on a daily basis, using everything from bamboo brooms
million tons of urban domestic waste annually does not        to mechanized sweepers. Japanese companies that have
reach a waste disposal site.                                  been aggressively courting the waste industry for years
    Urban waste is collected on a daily or twice-daily        dominate the market for equipment.
basis in China. The most common refuse collection sys-           However, the process of sweeping is hampered by
tems in urban China are central drop-off spots in each        inefficiency. Since the minimum-sized street sweeper
neighborhood, often located at street corners. A drop-off     must fit through the narrow alleyways that line the tra-
spot may be as simple as a designated spot to pile            ditional housing complexes of Chinese cities, munici-
garbage or as advanced as a transfer station. Residents       palities often purchase many street sweepers of just that
either deliver their garbage to a drop-off spot or deposit    size. A sound market-entry strategy might make use of
it in a garbage chute, from which maintenance staff col-      a convincing argument to persuade decision-makers to
lect the refuse and deliver it to a transfer station.         purchase street-sweeping equipment in a variety of
    Outside of urban centers, there is little controlled      sizes and types in order to increase efficiency in clean-
refuse collection, but there is a higher tendency to reuse    ing up urban highways and construction sites. Market
and recycle materials prior to disposing of them.             potential exists for a U.S. company that can demon-
Unfortunately, particularly at the village level, refuse      strate the efficacy of such a strategy and then provide
accumulates on any unused piece of land and often ends        the most cost-effective fleet of equipment to implement
up in water sources.                                          the strategy.
    Locally-produced solid waste containers are general-         In reality, refuse collection does not appear to present
ly of poor quality, and because they are uncovered and        a whole host of opportunities for the near future, prima-
of low-grade materials, they must be replaced every six       rily due to a lack of funding and interest. One area of
months to one year. Recently, municipalities such as          improvement may be in large-scale transfer stations
Shanghai and Shenzhen, with an eye to saving money,           capable of pre-sorting and some initial treatment; local
have begun investing in higher-quality containers with        governments have demonstrated some interest here.
longer life spans.                                            Street-sweeping and other service equipment sales may
                                                              prove profitable if prospective exporters invest ade-
Transfer and Treatment                                        quate time and resources in their market studies.

   Currently, all collection devices and locations,
including three-wheeled bikes, trucks, and buildings,         Management Strategies
are owned by municipalities. The vehicle fleets are gen-
erally outdated and of insufficient size and capacity.        Composting
Most collection vehicles are open, converted dump
trucks that do not adequately contain waste. Authorities         Many cities in China have established simple in-ves-
would like to upgrade and enlarge these fleets, but gen-      sel composting systems to process municipal solid
erally speaking there are no funds available for this.        waste. Mixed municipal solid waste is delivered to the
Until waste management fees are implemented prof-             facilities, and following hand sorting, the material is
itably, this sector will remain unappealing to foreign        fed into digesters. After digestion, the compost is either
investment outside of internationally-funded projects         sold as is or with the addition of supplemental chemi-
and direct aid.                                               cal fertilizers.



                                                                                       China Export Market Plan 51
   Overall, composting treats a very small percentage of    than 50 percent organic matter, is not highly com-
the total municipal solid waste generated in China.         bustible. Nonetheless, China insists on developing Òcut-
Composting systems were initially set up to process         ting-edge technology,Ó in the words of one sector
municipal solid waste into compost and sell the com-        specialist. Incineration is looked on favorably by many
post at a profit. Experience in China has shown, how-       cities due to the small land requirement and the sup-
ever, that the value of the compost is less than the cost   posed potential for electricity generation.
of producing it. Additionally, systems are plagued with        Currently, incineration treats only 1 percent of
operating problems and do not generally meet their pro-     municipal solid waste in China, although industries
cessing objectives. As a result, the majority of compost-   generally maintain their own incineration systems for
ing facilities have shut down, and cities that were         in-house processing of wastes. There are only three
previously composting municipal solid waste have            types of incineration systems used: the most common is
reverted to uncontrolled land filling.                      the smaller, often manually loaded, incinerator
   At present, composting seems to have fallen by the       employed by industries, with no environmental protec-
wayside. ChinaÕs cities would profit, however, if they      tion controls in place (some efforts at cleaning these up
were to reinvestigate possibilities for regional or com-    are underway). The second is the municipal waste treat-
munity composting facilities. ChinaÕs solid waste, com-     ment incinerator, of which there are only a few through-
pared with that of developed countries, is high in food     out the entire country. Finally, China is experiencing an
and organic waste content. This makes both land filling     explosion in waste-to-energy plants. It should be noted
and incineration less efficient because of compaction       that, despite the above distinctions, incineration has a
problems and low BTU value. Add to this ChinaÕs lack        very broad definition in China and may include the
of arable land and land management problems in gener-       open burning of mixed wastes.
al, and composting begins to appear a promising alter-         Since 1987, Shenzhen has operated a 300-to-450-
native. Given the governmentÕs emphasis on                  ton-per-day incinerator for hazardous and medical
incineration techniques, some pre-sorting of waste into     wastes. However, data as to its effectiveness, costs, and
organics and burnable materials would prove rewarding.      hazards is not available. In January 2001, the first
   Until the technical expertise and investment neces-      Chinese-made hazardous and industrial waste-to-energy
sary to demonstrate that composting may be profitable       incinerator opened in Wenzhou, with a capacity of 320
is introduced, authorities will continue to focus on        tons per day. One large-scale municipal solid waste
expanding and improving incineration and landfill           incinerator in Shanghai was under construction at the
capacities.                                                 time of writing and should be completed by 2002: its
                                                            expected operating capacity is 1,000Ð1,500 tons per day
Incineration                                                (tpd). Guangzhou plans to build two waste-to-energy
                                                            plants by 2005 that will convert half of the cityÕs trash
   In addition to strengthening the recycling industry,     to electricity. Several small-scale incinerators are in the
the construction of incineration facilities and landfills   five-year pipeline. The coastal city of Tianjin has
represents further priorities for Chinese authorities       announced an agreement with France to build a 30-tpd
within the waste management sector.                         hazardous waste incinerator, and Wuhan plans to build
   While presented as a panacea for the waste manage-       three 40-tpd hazardous waste plants using Swiss loans.
ment problem, incineration remains a controversial sub-
ject in China. Among the various methods of dealing         Emissions and Ash Management
with municipal solid waste, the Chinese show great
interest in expanding their incineration capacity despite      The country bearing the distinguished reputation of
the fact that the capital and operating requirements for    having the worldÕs worst air pollution has good reason
such plants often surpass those for landfills. There have   to express concern over the implementation of inciner-
been several arguments raised against incineration (pre-    ation methods to treat solid and hazardous waste. Yet
senting integrated solid waste management as the alter-     China tends to look to Japan, which incinerates the vast
native) for reasons such as the exacerbation of already     majority of its waste due to limited land resources, as a
critical air pollution and a lack of capacity for burning   model for solving its domestic waste problems. China,
toxic wastes. Additionally, China has in the past been      however, has neither the funds nor the skills to imple-
extremely successful in separating out paper, glass, and    ment Japanese processes with adequate control and pre-
other recyclables from the stream of municipal solid        cision and therefore risks further contamination of its
waste so that the remaining waste, which may be more        air, land, and water.



52 U.S. Department of Commerce, International Trade Administration
   In an apparent contradiction, China seems intent on       fills are the final resting place of over 99 percent of all
both reducing air pollution from its coal-burning indus-     municipal solid waste. In general, Chinese landfills do
tries and increasing its incineration capacity, which if     not meet best practices from either a design or a man-
poorly implemented will exacerbate air pollution issues.     agement perspective. Although there is some dissemi-
If this strategy is pursued, China will increasingly         nation of the available literature on land filling
require methods of emissions reduction and ash man-          and a variety of regulations and standards, modern
agement within the incineration industry that conform        landfills suffer after the design phase from a lack of
to the strictest standards. Incentive to do so may devel-    construction knowledge and implementation control.
op from the progress that has been made in expanding         According to the World Bank, of all waste
ash management abilities to facilitate the use of the ash    management facilities possible, China would profit
for road building and other construction initiatives.        most sustainably from the development of modern
                                                             sanitary landfills.
Worst Sales Prospects                                            Landfills fall into two categories in China. The most
                                                             prevalent type is the Òcontrolled dump site.Ó These
Large-Scale Incineration Technologies. Unfortunately,        landfills allow scavengers on-site, have no leachate col-
without the benefit of tied aid, U.S. companies often        lection systems, employ infrequent or no cover systems,
find the incinerator market saturated with cheap             have limited or no compaction, have no gas control sys-
Chinese incineration materials and foreign-funded            tems, keep few or no records, and have no waste-
equipment financed by tied aid programs.                     screening systems in place. It is not at all uncommon for
                                                             untreated hazardous and medical wastes to be mixed in
Best Sales Prospects                                         with municipal solid waste and industrial refuse.
                                                                 The second and far less common type consists of
Monitoring Equipment. U.S. companies are well posi-          those landfills currently built near a number of urban
tioned to provide monitoring equipment and instrumen-        centers according to more modern land-filling stan-
tation, and this market continues to grow in China.          dards, and facilitated by outside financing and design.
                                                             Although efforts are made to design and build these in
Ash Management and Emissions Technologies.
                                                             line with high standards, it is still unclear how well they
Companies that provide technologies to capture ash,
                                                             are operated.
treat contaminated ash, and render the ash useful to other
industries are sought after. Authorities within the trans-
port and road-building industry and the recycling indus-     Worst Sales Prospects
try are pursuing incinerator-ash-use techniques.
                                                                Because most waste projects in China are at least
Management and Consulting Services. Operating                partially funded by multi- or bilateral sources, several
skills and training are required if China intends to keep    factors affect the viability of landfill equipment sales.
incineration facilities safe. As in the wastewater treat-    The following are examples of products that typically
ment industry, many facilities deteriorate due to poor       have no market access in China.
maintenance or lack of qualified staff. Opportunities
exist through multilateral and some governmental proj-       Compactors and Compacting Equipment. Steel-
ects for capacity building in these areas.                   wheeled and other advanced compactors are rarely used
                                                             in developing countries because of their prohibitive
   Due to a lack of tied aid from the United States,         cost. Instead, cheap Chinese bulldozers perform com-
American companies in the incineration sector may            pacting, sloping, and other functions. In addition, the
have to content themselves with the provision of small-      high organic content of most Chinese solid waste makes
er technologies associated with that sector. Large proj-     compacting less effective, and the intense rains in some
ects facilitated through multilateral financing may          regions of China turn the waste into muck that traps
present an area of opportunity, although the World Bank      compactors for the duration of the rainy season.
and other funding sources appear to be concentrating on
landfills at present.                                        Liner Materials. As in most developing countries, liner
                                                             materials are cheap and locally made. Clay liners, for
                                                             example, are inexpensive and function relatively well if
Landfills
                                                             managed properly. Some of the multilateral landfill
  Land filling is the most common municipal solid            projects utilize foreign liners, but manufacturers
waste management method used in China, and land-             prospecting in China are limited to such projects.


                                                                                      China Export Market Plan 53
Leachate Collection Materials. Expensive leachate              U.S. Strengths and Opportunities
management technologies find no place in ChinaÕs land-
fills. Typically, the most efficient method used is to col-    ÒComplete PackageÓ Solutions
lect leachate in concrete-lined holding ponds in order to
evaporate as much as possible or to dilute it during              Within all sectors related to solid waste management,
rainy times. Some wastewater management techniques             there is a tremendous need for engineering expertise,
have been adapted to this function.                            from financing and site selection to design, construc-
                                                               tion, and maintenance of facilities. Concepts that paral-
                                                               lel innovations in the wastewater treatment industry,
Best Sales Prospects                                           such as the BOT model, are even more valuable as
Monitoring Equipment. The United States excels in the          waste management gradually becomes profitable. The
production of cost-effective and reliable monitoring           Chinese eagerly seek solutions to their waste problems,
equipment. Equipment is required for gas, leachate, and        and a company that is willing to provide experience and
groundwater contaminant measurements in order to               expertise in this area will discover a variety of interest-
enforce new regulations.                                       ed parties, from municipalities to state-owned and pri-
                                                               vate enterprises coping with their own waste concerns.
Management Technologies. Often, a landfill is con-                Lack of funding and a lack of local knowledge in the
structed with a modern and effective design but then           waste disposal area mean that, as national government
left to Òrun itself,Ó without proper supervision and           regulations tighten, every sector of society that pro-
controls in place. Corresponding to needs in the               duces solid waste feels pressure to manage waste in a
wastewater treatment industry, there is a need in the          well-planned and cost-effective manner. Some funding
solid waste industry for landfill maintenance and              is available from multilateral and bilateral sources, as
operational know-how. A company with an innovative             well as from various levels of Chinese government. As
and cost-effective turnkey solution to landfill design         the waste problem intensifies, individual entities are
and management that can be adapted to the various              increasingly forced to seek out financing schemes that
regions of China may be suited to market entry.                make waste management possible and profitable.
Technology to Improve Existing Landfills. Landfill
managers in smaller cities are often told to close open-       Knowledge Transfer and Training
area dumps and to construct controlled landfills.
However, due to costs and lack of expertise, the dumps            Current facilities and ongoing projects already suffer
are more likely to be converted simply to conform to           from a lack of operational skills and management.
regulations. Hence, there is a need for firms that are         Services in which U.S. companies excel, including con-
equipped to provide low-cost equipment and expertise           sulting and engineering, are required not only for new
to enable this conversion under a variety of conditions.       projects but for completed and ongoing waste disposal
                                                               projects for which funding has expired. The Chinese
    U.S. companies find it difficult to advance in ChinaÕs     government cannot combat the waste explosion without
solid waste sector for several reasons. First, the U.S. pro-   maintaining or increasing current investments, and the
vides extremely limited development aid to China;              pressure brought to bear by the deterioration of hastily
hence, large landfill projects go to foreign competitors       planned facilities is increasingly felt. Needs include
backed by bilateral programs. Second, the U.S. lags            employee and managerial training for the operation of
behind most developed countries in maintaining efficient       facilities as well as maintenance and monitoring servic-
and cost-effective landfill operations. Third, many U.S.       es that local staff cannot provide.
companies suffer from an attitude of Òwatch and waitÓ as
opposed to early market entry, which will render them
uncompetitive at a later stage of market development.          Trends and Conclusions
    Besides monitoring equipment and engineering
expertise, U.S. vendors must present a unique and inno-           The solid waste management sector in China is cur-
vative land-filling solution particular to ChinaÕs various     rently in a stage of development similar to that of the
problems, in order to have an impact on the landfill sec-      wastewater treatment industry there three to five years
tor in the near future. The most promising areas of            ago. Current financing for solid waste projects is scarce.
opportunity include multilaterally-financed projects and       Competitors rely on bilateral aid or take bold invest-
services such as consulting for the upgrading of land-         ment steps in order to position themselves for the time
fills to conform to new regulations.                           when the waste industry in China becomes profitable.



54 U.S. Department of Commerce, International Trade Administration
 Box 7.    SULO Case Study
 In 1998, SULO, a German-based waste management company, established a joint venture in Beijing. SULO is GermanyÕs num-
 ber-three provider of waste services, with activities in New Zealand, Australia, and Singapore in addition to China. Although
 SULO provides a variety of services internationally, including composting, pre-treatment, and waste sorting, it is currently pro-
 ducing only garbage bins in China, for both local consumption and export markets.
    SULO has experienced many problems with regard to the Chinese solid waste market. Local Chinese authorities are unwill-
 ing to invest in new waste management systems due to insufficient funds, and SULO expects that the market will remain unsuit-
 able for the next few years. Despite many efforts to convince municipal governments, SULO has been unsuccessful in providing
 services other than the sale of garbage bins. An example is SULOÕs recent attempt to experiment with a new waste manage-
 ment system in a small city in Inner Mongolia. Half the project was to be financed by the German Ministry of Cooperation and
 half by the Chinese government counterpart; after much deliberation, the latter refused to provide financing and the project
 was aborted.
    SULO now has three representative offices in China, based in Shanghai, Guangzhou, and Kunming (where it controls 100
 percent of the market share). In three to five years, the company hopes to offer waste treatment technologies and services. Only
 three Chinese competitors exist in the whole country, all of which produce garbage bins of much lower quality; similarly, no
 foreign competition has stepped up. Some foreign companies have established offices in Hong Kong from which to watch the
 Chinese market and perhaps await more favorable conditions. Nevertheless, SULO feels it is well positioned, having prospect-
 ed for the past two years and built up a solid network of governmental and organizational relations.
    The development of this market, according to SULO, will be a result of changes in attitudes as opposed to policies, although
 policy will play a large role in strengthening the market in smaller cities and municipalities.



Considering the estimated growth rate of this industry              Henderson, J. Paul, and Terrill J. Chang. ÒSolid Waste
over the next five years and the promulgation of addi-              Management in China.Ó Edited by H. Lanier Hickman,
tional regulations that will force municipalities and               Jr. May 1997. Available at www.ecowaste.com/swan-
industries to take a closer look at their own pollution             abc/papers.
disposal strategies, U.S. companies would do well to
investigate and enter the market in order to position               ÒTianjin Begins to Levy Fee for Domestic Solid Waste
themselves. According to CRAES, the total amount of                 Treatment.Ó PeopleÕs Daily, June 26, 2001.
waste generated increases by 25 million tons a year.
Seventy-five percent of this waste must be treated. In              Web Sites
order to do this China must increase its waste manage-
ment capacity by 55 million tons a year.                            Human and Nature in Harmony: China Environment
                                                                    and Development Information (categories include:
                                                                    waste management, waste disposal/treatment. Site
Selected References and Web Sites                                   consists of a collection of articles pertinent to this sub-
                                                                    sector): www.enviroinfo.org.cn.
References
                                                                    United States Environment Program, Division of
ÒBeijing to Unify Waste Collection, Recycling
                                                                    Technology, Industry, and Economics. Municipal solid
System.Ó ChinaOnline, June 14, 2001.
                                                                    waste management (an on-line technical publication
                                                                    provided by the United Nations Environment Program
ÒChinaÕs Mines Scheduled for Cleanup.Ó ChinaOnline,
                                                                    Web site. Includes Asia- and China-specific informa-
Oct. 23, 2000.
                                                                    tion): www.unep.or.jp/ietc/ESTdir/pub/MSW/index.asp.
ÒDomestic Solid Waste Increased by 8Ð10 Percent in
2000.Ó Guangming Daily, Dec. 8, 2000.

ÒGuangzhou Trash-Burning Plant Blazes Trail for
Private Environmental-Protection Projects.Ó
ChinaOnline, Aug. 17, 2000.




                                                                                               China Export Market Plan 55
                                                    Chapter 6
                                               Air Pollution


Air pollution in China represents the most serious            account for 50 percent or more of total coal use in the
threat to public health and to the continued economic         next 20 years.
development of the country. Half of the 322 largest
Chinese cities have serious air pollution problems and
total suspended particulate (TSP) concerns exist in           Policy Framework
every city in the country, causing an estimated $3.65
billion in losses each year. Air pollution in a number of     The Air Pollution Prevention and Control Law
Chinese cities is among the highest ever recorded
worldwide, reaching more than 10 times WHO stan-                 China has made marked progress in the area of air
dards. Beijing itself ranks high on the national list of      pollution management since 1987, when the first Air
cities with excessive nitrogen oxide emissions, and           Pollution Prevention and Control Law went into effect.
Taiyuan, in Shanxi Province, and Lanzhou, in Gansu            Recent amendments of the law (which was first amend-
Province, rank among the 10 most polluted cities in the       ed in 1995) illustrate the Chinese governmentÕs pursuit
world. The threat to public health and welfare is signif-     of increasingly sophisticated legislation. The most
icant: it is estimated that air pollution-related health      recent changes, effective on Sept. 1, 2000, substantially
problems are responsible for over 300,000 deaths and          revised the law. In the lawÕs newest form, its jurisdic-
over 11 million emergency clinic and hospital visits          tion is extended beyond industrial enterprises and
annually in China. Similarly, air pollution is responsi-      power plants to pollution sources such as automobiles,
ble for tremendous agricultural and other economic            ships, construction dust, and domestic heating and
losses. At least 30 percent of ChinaÕs total territory suf-   cooking stoves. The new amendments also increase the
fers from acid rain, most of it falling in the southern       number of regulated parameters, introduce total emis-
part of the country.                                          sions control (TEC) to bolster concentration-based stan-
   Coal consumption remains a major contributor to            dards, provide for far more rigid penalties, and clarify
poor air quality, but throughout the 1990s the profile of     the responsibilities of relevant authorities. The potential
contaminants has been changing. After peaking in 1996,        enhancement of enforcement capacity resulting from
growth in energy demand turned negative, leading to           these final two changes may affect impact upon market
current reports indicating that ChinaÕs recent CO2 and        demand for pollution-reducing technologies if they are
SO2 discharges are lower than expected. Yet nitrogen          faithfully carried through.
oxide pollutants (of which automobiles are a significant         If the amendments are fully implemented within the
contributor) are on the rise; barring significant changes     next 10 years, the law could reduce the total volume of
in transport technology, Chinese oil demand could dou-        air pollutants to 1995 levels, control sulfur dioxide emis-
ble in the next 20 years. Similarly, despite moderate         sions within the SO2 and acid rain control zones at 10
reductions in the median TSP levels of many of ChinaÕs        million tons, achieve national level II air quality stan-
largest cities over recent years, total TSP exposure has      dards in 34 of the 47 currently identified key cities select-
actually increased, as the numbers of exposed individu-       ed by the State Council, and reduce dust emissions from
als have outpaced pollution reductions. Dust from con-        construction sites in Beijing by as much as 70 percent.
struction sites and windblown soil are increasingly              A notably significant amendment is the shift to TEC,
important TSP components. In addition to these param-         an initiative attempted thus far on a limited scale in
eters, a host of other equally important air pollution fac-   areas such as the Liao River and the SO2 and acid rain
tors such as carbon monoxide, ozone, and lead are not         control zones. The policy shift clearly indicates a pro-
systematically monitored, and therefore their preva-          gression in regulation that moves from point-source and
lence and impact are unknown.                                 concentration-based approaches to a holistic, Òecologi-
   Large point sources remain key contributors to air         cally basedÓ regulatory framework. Additionally, TEC
pollution, which in some ways could ease the process of       establishes a basis for market-based air pollution con-
mitigation; the power sector, for example, could              trol tools such as emissions trading.


56 U.S. Department of Commerce, International Trade Administration
Priority Issues                                                 Counterproductive subsidies are sometimes provided to
                                                                power plants.
SO2 Emissions. ChinaÕs national standards for allowable            Finally, since mass-loading criteria are not yet effec-
SO2 emissions are comparatively strict at 50 micrograms         tively enforced in any city in China, ambient air quali-
per cubic meter; the WHO standard is 60 micrograms,             ty in any given area may not be affected by the
and the U.S. standard is 80 micrograms per cubic meter.         initiatives even if all industries and power plants con-
From 1991 to 1998, levels of SO2 in some of the worst-          form to the standards.
polluted cities dropped due in part to increased regulation
and control. Despite this, most cities experienced wors-        Indoor Air Pollution. Indoor air quality parameters are
ening pollution over the past decade due to the previous-       measurable in any environment, from rural domestic
ly noted increases in pollutants such as nitrogen oxides.       spaces to office buildings and industrial plants. In
                                                                China, however, most concerns over indoor air quality
   Revisions in the Air Pollution Prevention and Control        arise from cooking and heating. Poor-quality fuels and
Law aim to keep annual SO2 emissions at 10 million tons         a lack of electric and clean fuel facilities contribute to
until 2010 in the acid rain and SO2 control zones. Three        heavy concentrations of pollutants in domestic house-
main policy measures in the acid deposition control pro-        holds, causing widespread health problems.
gram are directed toward SO2 emissions:
                                                                   The severity of indoor air pollution and its resulting
1. There will be a gradual phasing out of coal with             consequences are difficult to measure due to a lack of
   sulfur content of 3 percent or more. Presently the           statistical data on both the national and local levels.
   extraction of such coal is restricted, although not          According to the World Bank, in 1991 there were 40
   forbidden, since the western regions of China have           million people using gaseous (i.e., non-solid) fuels for
   access only to low-quality coal. Thus, enterprises           cooking and water heating; by 1998, that level had risen
   wishing to burn coal with sulfur content of over             to 156 million. Additionally, the quality of combustible
   3 percent must install environmental control                 material rose considerably with the increased utilization
   technologies.                                                of briquettes and gaseous fuels.
2. Newly built or renovated coal-fired power plants                Indoor air pollution is also exacerbated by ChinaÕs
   using coal with sulfur content of over 1 percent             rapid urban growth and widespread construction of
   must install sulfur-scrubbing technology. Existing           high-rise buildings. In construction during winter
   facilities must adopt SO2 reduction technology               months, urea is used in the concrete mix as a curing and
   including flue gas desulfurization (FGD) by 2010.            anti-freeze agent. During the hot humid days of sum-
3. The current fee level of RMB 200 ($24) per metric            mer, the urea hydrolyzes, releasing high concentrations
   ton of SO2 emissions represents a shift in policy            of ammonia into indoor areas and resulting in signifi-
   from the former scheme, in which charges were                cant health concerns.
   imposed only on air emissions that exceeded stan-               Asbestos is yet another concern. Although asbestos
   dards. However, the margins remain far too low to            was long considered an issue of little significance in
   encourage investment in abatement.                           China, heightened awareness is increasingly forcing
   These regulations face a number of criticisms and            mitigation and the use of alternative materials.
constraints. First, the prohibited use of coal with more        Auto Emissions. The number of vehicles nationwide
than 3 percent sulfur content means that even facilities        grew to over 13 million by 1998, about 10Ð20 percent
utilizing FGD technology cannot use low-quality coal,
                                                                of which were private cars. That number has further
despite the fact that environmental requirements could
                                                                increased in the past three years, resulting in significant
be met in a cost-effective manner. Additionally, the
                                                                congestion and air pollution. The emissions of motor
installation of FGD equipment is considered prohibi-
                                                                vehicles in China are quite different from those in
tively costly for China.
                                                                industrialized countries, due to obsolete manufacturing
   Second, improving the quality of the coal supplied to
                                                                technologies utilized in the local automobile industry,
large power plants has actually increased the supply of
                                                                inadequate auto maintenance, and poor fuel quality.
high sulfur coal to industrial and residential facilities (as
                                                                SEPA and other agencies are currently working to
an alternative market), which are less likely to employ
                                                                develop effective strategies to reduce vehicle pollution
clean and efficient utilization systems, therefore main-
                                                                and improve performance.
taining high pollution outputs in urban areas. Issues of
coal pricing must also be noted; in general, coal prices           The State Council issued regulations forbidding the
do not reflect coal quality and sulfur content.                 production, distribution, and utilization of leaded gaso-



                                                                                         China Export Market Plan 57
line by September 1998, and it decided to consolidate        PM10, PM2.5, ozone, volatile organics, and nitrogen
the fuel market and close down small refineries that         oxides. These variables are likely to be addressed in
could not meet regulations. Leaded fuel production           future legislation.
ceased on Jan. 1, 2000, and sales of leaded gas ceased
on July 1, 2000.                                             Legislative Trends
   In January 2000, SEPA also issued emissions stan-
dards equivalent to EURO-1 standards for light-duty             China is increasingly aware of the steps that must be
vehicles. Heavy-duty vehicles must conform to EURO-          taken to reduce air pollution. Measures to guard against
2 standards, and all new cars must have electric fuel        SO2 emissions, for instance, are widely seen as steps in
injection and catalytic converters. According to the law,    the right direction, although current legislation needs to
all vehicles must be inspected annually; however,            be refined to lower its concentrations effectively. In
enforcement capacities present a problem. More reduc-        addition, there is concern that other factors such as nitro-
tions could be accomplished with stricter supervision at     gen oxide are excluded from calculations, despite the
all levels.                                                  fact that they play a large role in ambient air quality.
                                                                Most regulations pertain to thermal power plants
Monitoring. Anecdotal evidence suggests that ChinaÕs
                                                             and industrial boilers, which constitute a sound first
air quality monitoring network has not kept up with reg-
                                                             step in controlling emissions and improving air quality,
ulatory changes over the past 10 years. As the pattern of
                                                             but they do not comprehensively address the majority
urban development has shifted, the number of stations
                                                             of harmful air emissions. For example, the drastic
and the location of most of them have not changed. For
                                                             increase in TSP concentrations in Beijing in the 1990s
example, government efforts to push small industries
                                                             seems to contradict the reduction of ground-level
outside of cities have led to a worsening of air quality
                                                             emissions from coal-burning sources. Coal combustion
on the outskirts of most urban areas, while the majority
                                                             contributes only a portion of urban pollution, whereas
of monitoring centers remain in the city centers.
                                                             natural dust from sandstorms and fine dust from
Similarly, as noted above, the parameters monitored do
                                                             unregulated construction sites around the city
not reflect the current profile of contaminants and are
                                                             requires attention.
not widely established. Monitoring systems exist only
in large cities and provide information on SO2, nitrogen
oxides, particulates, and settled dust. Carbon monoxide      Jurisdictional Responsibilities and Enforcement
is measured in a few cities, but pollutants such as hydro-
                                                                The national government has made swift progress in
carbons and ozone are not.
                                                             adopting air pollution control measures in the past six
   As expressed in the Tenth Five Year Plan, SEPA            years. SEPA, through a variety of agencies and
plans to upgrade and expand the countryÕs monitoring         enforcers, is responsible for monitoring air quality and
network. This is in order to monitor the effectiveness of    making recommendations. However, the responsibility
specific environmental efforts and also to gain a more       of monitoring and enforcement ultimately falls upon
accurate and comprehensive analytical view of the state      local EPBs, the operations of which are plagued with
of ChinaÕs environment.                                      structural problems. EPBs receive policy instruction
                                                             through a vertical hierarchy at the top of which is SEPA.
Policy Priorities                                            However, it is the local governments that currently
                                                             administer day-to-day operations of the EPBs, such as
   According to the Tenth Five Year Plan, SO2 emis-          budgets and personnel. Thus, if a local government
sions are to be reduced by 2.5 million tons. Achieving       views a SEPA policy as contradictory to local ambi-
national air quality standards for the 100 key munici-       tions, a hindrance to economic growth, or likely to
palities during the Tenth Five Year Plan requires RMB        cause unemployment and similar issues that could
200 billion of investment. According to CRAES, over-         affect social stability, it has far more capacity to influ-
all investment in air pollution requires at least RMB        ence the EPB than does SEPA. Similarly, as with other
300 billion.                                                 forms of pollution, EPBs often experience logistical dif-
   The monitoring network must be extended, upgrad-          ficulties in enforcing government mandates on air emis-
ed, and better maintained. China has an enormous need        sions. Insufficient inspection capacities, undertrained
for training toward these ends, as well as a need for        staff, shortage of personnel and requisite utilities, and
effective analysis of monitoring data. Furthermore, to       numerous other barriers hinder their operations. Finally,
prove effective, monitoring must include SO2, TSP,           reversion rates are high: although over 1,700 polluting



58 U.S. Department of Commerce, International Trade Administration
enterprises were shut down at the end of 2000 to meet              being given to clean coal-based pilot projects with single-
state targets, it is believed that as many as 70 percent of        generation capacity in excess of 300,000 kilowatts.
them restarted operations shortly thereafter.
                                                                   Indoor Air Pollution
The Market
                                                                      Three factors determine levels of indoor air quality:
   The Chinese air pollution control market is excep-              fuel quality, burner technology, and ventilation. Studies
tionally competitive. Japan maintains a distinct pres-             indicate that even when solid fuels are used, improve-
ence, accounting for over 30 percent of all imports.               ments in flue gas ventilation can achieve a reduction of
Foreign imports account for over 50 percent of all sales           almost 90 percent in indoor air pollution levels. While
in this area because of two factors: local manufacturing           cleaner fuels and cleaner-burning technology often
capabilities are low, and air pollution control projects           provide the best reduction in indoor air pollution, the
have traditionally been financed, at least in part, by             most cost-effective option has typically been adjust-
multilateral or bilateral aid.                                     ments in ventilation.
   While U.S. equipment is seen as very advanced, the
price is often too high for use in all but multilaterally
financed projects. Several manufacturers have never-               Auto Emissions
theless made progress in the Chinese air pollution con-
                                                                      According to the World Bank, motor vehicle emis-
trol market due to a variety of factors (see U.S.
                                                                   sions are already a major source of pollutants in the
Strengths and Opportunities). As the government places
                                                                   cities of Beijing, Shanghai, and Guangzhou. It is esti-
higher priority on air pollution control projects, U.S.
                                                                   mated that vehicles contribute to over 60 percent of the
firms will see more opportunities to win bids.
                                                                   air pollution in urban zones: they are the source of
                                                                   45Ð60 percent of nitrogen oxide emissions and approx-
SO2 Control                                                        imately 85 percent of carbon monoxide emissions. A
                                                                   number of factors contribute to the problem:
   SO2 control equipment is a tough sell in the wide-
spread Chinese market. There is a mandate for highly               q    More vehicles. The number of vehicles on the road
polluting coal-fired power plants to install waste gas                  has nearly tripled since 1990, and the demand for
treatment facilities or technology, but many plants are                 new vehicles is growing by 13 percent per annum.
instead utilizing cleaner coal to avoid retrofitting or            q    Poor manufacturing techniques. Obsolete manufac-
installing expensive equipment.                                         turing techniques, while slowly advancing, have led
   With power demands increasing by a rate of 5-6 per-                  to extremely poor fuel efficiency in most Chinese
cent annually, the power market has been restructuring in               vehicles. The average emissions level of new
order to improve efficiency and reduce pollution. Small                 domestic vehicles is almost 10 times greater than
thermal power plants are being closed, and priority is                  that in developed countries.


Table 6.1 Air Pollution Control: U.S. Exports to China (FAS value in thousands of dollars)

HTS Number      HTS Description                                        As of April 2001         2000                 1999

84041           Boiler parts (super-heaters, gas removers)                   833.6            29,830.8             112,849.2
84042           Condensers for steam/other vapor power units                  81.0               275.9                  N/A
84051           Gas generators                                               443.0               615.2                 144.3
840999          Parts for use with engines of heading 8407, 8408          10,091.7            13,482.7               9,931.3
841459          Fans and blowers                                             542.1             1,850.4                 761.8
842139          Filtering or purifying machinery for gases                 4,106.3             6,986.3              12,016.8
842199          Parts for 842139                                           7,025.5            25,592.9              16,126.1

Source: USITC Trade Database, www.dataweb.usitc.gov.




                                                                                            China Export Market Plan 59
q   Poor automobile maintenance. Most auto owners            equipment for thermal plants will go toward installing
    and manufacturers are careless about maintenance         this equipment on 51 coal-fired power plants within the
    measures. Promotion of annual safety and mainte-         acid rain control zones.
    nance procedures will lead to greater efficiency and        Clean coal and scrubber technologies such as FGD
    fewer emissions.                                         and circulating fluidized bed (CFB) are prohibitively
q   Lack of infrastructure. A lack of planning and infra-    expensive for the Chinese end user. Often, despite man-
    structure has resulted in vehicle emissions levels       dates passed down from the central government, no
    comparable to those of industrialized countries 25       funds or incentives are provided for the use of such
    to 35 years ago. This lack can be redressed only by      advanced air pollution control technology. A key to
    efficient policy measures designed to reduce and         increasing the use of such technology involves nurtur-
    control the number of cars in key areas and manage       ing the capacity to manufacture a substantial portion of
    traffic effectively.                                     the technology within China. Technology acquisition
                                                             and deployment through licensing agreements, JVs, and
Air Monitoring                                               other avenues may be critical.

   All 100 key cities already identified or to be identi-    Indoor Air Pollution
fied in keeping with the Tenth Five Year Plan are
expected to install automatic air quality monitoring sys-       As China becomes more aware of the problems of
tems and transmit this data by satellite to data bases and   poor air circulation and office building air quality prob-
monitoring centers. According to conservative esti-          lems, there are opportunities for air cleaners, filters,
mates, this project will require the importation of over     fans, and blowers of various types as well as coatings
$300 million in monitoring equipment and associated          and chemical absorbers used for remediation efforts.
technology during its early stages.
   The equipment needed for both government (regula-
tory) and industrial use ranges from sampling and flow       Auto Emissions
monitoring units to analysis equipment. Local manufac-          Several U.S. auto emissions control technology com-
turers cannot compete in this market, as they lack the       panies are demonstrating a strong presence in the
capacity to produce high-quality products.                   Chinese auto emissions control market. Corning
   In addition, employees of monitoring centers require      International, in April 2000, moved a large part of its
advanced training in the operation of monitoring and         catalytic converter ceramic substrate manufacturing
analytical equipment. Firms able to provide equipment,       operation to China. While raw materials for this opera-
effective training, and after-sales service will see         tion are still imported from the U.S., a strong local pres-
increasing demand.                                           ence and reduced production costs make Corning a
                                                             tough competitor in the auto emissions control market.
U.S. Strengths and Opportunities
                                                             Air Monitoring
SO2 Control
                                                                Some U.S. firms, such as Thermo Instrument
                                                             Systems and Hewlett-Packard, are already well known
   Achieving the targets of the Tenth Five Year Plan         by Chinese end users. Thermo Instrument Systems has
requires a minimum investment of RMB 100 billion             a 70 percent share in the environmental air quality mon-
($12 billion) in desulfurization technology, broken          itoring market in China. In March 2000, Dasibi
down in the following manner:                                Corporation, a much smaller player, arranged to install
                                                             $13.4 million of air monitoring equipment in 33 key
q   RMB 55 billion ($6.6 billion) in desulfurization
                                                             cities in China, with the help of the Export-Import Bank
    technology for thermal power plants
                                                             of the United States (Ex-Im) and commercial banks.
q   RMB 30 billion ($3.6 billion) in the control of
                                                             Other active firms include Advanced Pollution
    domestic SO2 emissions
                                                             Instruments and Environmental Systems Corporation. A
q   RMB 15 billion ($1.8 billion) in desulfurization
                                                             strong U.S. capacity to produce high-quality monitoring
    technology for industrial furnaces
                                                             equipment, coupled with weak capacities among
 Approximately RMB 6.4 billion ($2 billion) of the           domestic producers to do so, makes this a particularly
RMB 55 billion ($6.6 billion) investment in FGD              promising market for U.S. companies.


60 U.S. Department of Commerce, International Trade Administration
Foreign Competition, Market-Entry Strategies,                  lectual property rights (IPR) protection is a concern, as
and Success Rates                                              is quality control of locally-generated equipment, parts,
                                                               and services. Additionally, as is the case in most
   Many Japanese, German, Canadian, Australian, and            Chinese markets, firms must consider the importance of
other foreign firms have gained a solid foothold through       maintaining good relations with Chinese authorities,
numerous tied-aid projects funded by their respective          buyers, and other market players.
governments. Such strong backing and incentives for               The World Bank and other multilaterally financed
export and financing are generally not available to small      projects still provide the best opportunities for U.S.
and medium-sized U.S. manufacturers. Meanwhile, for            technology exports due to the availability of hard cur-
projects financed solely by the Chinese government,            rency, an open bidding process, and a number of risk-
equipment and services will tend to be procured from           mitigating factors.
local Chinese firmsÑdespite quality issuesÑdue to
price differentials and protectionism. (As in other sec-
tors, this is starting to change, but only very slowly.)       Selected References and Web sites
   Nonetheless, Chinese authorities and local decision-
makers view U.S. air pollution control technologies as         References
highly respectable. Thus, U.S. companies in the air pol-
lution control field must keep in mind the importance of       Hu Chengnan. ÒDevelopment and Market Analysis of
cutting costs. Outside of multilaterally financed proj-        Control Technologies for Motor Exhaust Gas in China.Ó
ects, air pollution control technology engineered and          ChinaEnvironment.
manufactured in the United States will have an extreme-
ly difficult time penetrating the market in China, but         Lee Chyen Yee. ÒSmoggy China must do more to curb
reducing costs will assist in overcoming one of the two        global warming.Ó PlanetArk Nov. 10, 2000. www.plan-
primary barriers and will prove vital to obtaining mar-        etark.org/dailynewsstory.cfm?newsid=8880&news-
ket opportunities as the budding trend of procuring for-       date=10-Nov-2000.
eign equipment continues to develop.
   A Chinese project manager with the Environmental            Weisbrod, Roberta E. ÓSolving ChinaÕs Urban Crisis:
Defense Fund who deals specifically with air pollution         ChinaÕs Transportation Energy Future.Ó Journal of
has noted, however, the saturation level of the air pollu-     Urban Technology 6, no. 1 (April 1999): 89Ð100.
tion control market in China. He maintains that unless a
foreign company has an innovative or cheap product             Web Sites
that can be tailored to fit key policy goals and priorities,
it will prove difficult to make headway at this time.          Environmental Defense Fund: www.edf.org
   A viable commercial strategy might involve an
approach that capitalizes on relatively inexpensive local      World Health Organization: www.who.int (includes air
materials and low manufacturing costs. Of course, intel-       pollution control standards and regional concerns).




                                                                                       China Export Market Plan 61
                                                   Chapter 7
                     The Environmental Services Sector


The services sector is among the most challenging sec-       considered: entering the sector is a long-term prospect,
tors in ChinaÕs environmental market to enter success-       requiring years of experience and laboriously cultivated
fully. To a great degree, the sector remains the territory   working relationships; innovation is an absolute must,
of anointed domestic institutions, monopolies, and those     and all innovation must take into account the particular
with ties that can only be developed over a long period      needs of ChinaÕs unique situation; successful navigation
of time. All services requiring official approval at any     of ChinaÕs bureaucratic apparatus can be difficultÑcer-
point, such as EIAs and engineering services, must be        tain players are to be avoided while others must be
conducted through an appropriately licensed institution;     courtedÑan appropriate approach is critical yet diffi-
such licenses are not available to non-Chinese operators,    cult to determine; and it is easy to develop a bad repu-
making cooperative initiatives requisite for all foreign     tation in China and difficult to mitigate the effects of a
investors. Additionally, service providers, with the         bad reputation after acquiring one, so service providers
exception of consultants, are required to operate in-        absolutely must deliver.
country, through either a JV or a WFOE.
   Likewise, the sector remains hostile to anyone without
a sound, in-depth understanding of both Chinese business     Institutional and Structural Points
culture and ChinaÕs environmental sector. Past business
experiences in China clearly indicate the complications      Registration Requirements for Service Providers
and barriers that all foreign investors doing business in
China face. In the environmental services sector, many of       Foreign service providers are able to establish opera-
these complications are compounded, making extensive         tions in China through WFOEs, JVs, or representative
in-country experience an arguably more valuable asset        offices. Normally, the lowest-risk and least costly
than extensive environmental industries experience.          option for small to medium-sized companies is to estab-
Environmental service providers who have been success-       lish a representative office to oversee marketing and
ful in other parts of the world are cautioned against        provide a base for operations until enough familiarity is
believing that directly transferring service models from     gained to move toward a WFOE or JV. While represen-
elsewhere to China will be categorically successful. It is   tative offices have some disadvantages related to
not unreasonable to assume that non-environmental com-       restrictions on the signing of contracts, on the direct
panies already operating in China that wish to expand        provision of services, and on the exchange of currency,
their scope into environmental services may have more        many small companies have been able to establish firm
potential for success than foreign environmental service     foundations by operating in China under this category
providers wishing to expand their operations into China.     and then moving on to other legal entities once they bet-
   Although China needs progressive, efficient, and          ter understand the market conditions. Such entities have
innovative management, service providers offering            historically been either an equity JV, in which an inter-
standard, boilerplate initiatives will not be successful.    national company forms a new Chinese-registered enti-
Generally speaking, the Chinese have a well-founded          ty with a local partner, or a contractual JV, which is
understanding of basic environmental services; what are      usually task or project specific and requires little finan-
needed are high caliber solutions custom designed to         cial investment. Both these types of legal entities have
meet the unique and complex needs of China. Providing        advantages and disadvantages that need to be thorough-
such innovation requires an in-depth and accurate            ly understood, with the assistance of competent legal
understanding of ChinaÕs development goals, environ-         counsel, before a decision is made. Finally, in recent
mental situation, institutional and regulatory structures,   years international companies have been able to estab-
and business culture, which again requires long-term         lish service/consulting WFOEs in certain areas of
and profound China experience.                               China, thus circumventing the need to partner with a
   While there is no formula for success in ChinaÕs          Chinese entity except for specific projects. While these
environmental services sector, several points should be      legal entities make management simpler and more


62 U.S. Department of Commerce, International Trade Administration
transparent, they are costly to establish and may be         solutions. Thus, the market is increasingly open to serv-
unable to obtain requisite professional licenses and         ice providers in the fields of environmental impact
permits that allow the direct provision of environ-          assessment (in conjunction with local institutions),
mental services.                                             energy efficiency, water recycling and reuse, waste-to-
   Registration of a WFOE, JV, or representative office      energy solutions, integrated environmental systems,
is a routine, yet at times lengthy, legal process in most    ecological water treatment methods, waste reutilization,
areas of China. The majority of the services that can be     and a range of services classified as cleaner production
provided are for multinational companies or multilater-      and sustainable development services.
al agencies that seek international services of a standard       The market for the above services has grown signifi-
not yet available in China. However, any activity regu-      cantly in the past five years. While the body of environ-
lated by Chinese law that requires a specific permit,        mental regulation has increased greatly, enforcement
such as undertaking an EIA, laboratory services, engi-       has not. Environmental protection in China is primarily
neering design, process fabrication, or equipment instal-    driven by economic and profit considerations, not by
lation, requires teaming with a local entity holding an      regulation. Because of this, business development
appropriate license. In some cases, even the services        strategies must always focus on increased efficiency
provided by a foreign entity in partnership with a local     and profitability, with increased environmental protec-
entity are not accepted; thus, the services need to be       tion as a side benefit. Because many of these solutions
subordinated to and under the title of the local entity.     fall outside the bounds of normally recognized possibil-
Foreign consulting service providers are also allowed to     ities in China, the basic concepts must often be com-
offer consulting services via cross-border delivery, but     municated and demonstrated in the form of case studies
all other service providers must operate in China or         presented in seminars, so that detailed economic justifi-
through a local partner.                                     cations are made. However, if approached properly, this
   For some services, such as those provided by analyt-      strategy can be quite fruitful, as most Chinese managers
ical laboratories, it may be prudent to consider estab-      see environmental protection as an added expense that
lishing a facility in a bonded zone. These zones, which      is required to be put at the end of a dirty process. If an
were primarily developed as export-reprocessing zones        alternate vision of efficiency and process reengineering
that would create jobs and generate revenue without          is presented, particularly in a scheduled format in which
entangling operators in customs formalities, are being       the initial investment is minimized, significant interest
increasingly used as bases for certain categories of         can be generated.
operations in China. For example, an analytical labora-          Generally, U.S. service providers and technologies
tory wishing to establish operations in China may find       are respected in China for their professional and time-
the barriers to importing the necessary specialized ana-     ly delivery. A further recognized advantage is the
lytical instrumentation into China prohibitive. But by       robustness of U.S. technology and services compared
establishing a base in a bonded zone, the laboratory can     with their European and Japanese counterparts.
bring analytical samples from the mainland into the          However, several barriers put U.S. service providers at
zone, complete the analysis there, and generate results,     a disadvantage. Foremost among the barriers is the lack
avoiding the levies associated with bringing the equip-      of a meaningful U.S. bilateral aid program to China.
ment into the country and bypassing the cost and logis-      While most other industrialized countries support their
tical difficulties of shipping samples overseas. (See Box    national environmental markets in China through pro-
10 for further discussion of bonded zones.)                  visions of tied aid, the lack of such a program from the
                                                             U.S. normally disqualifies U.S. service providers in
Market Profile                                               favor of those bringing bilateral aid with them. This
                                                             problem is further exacerbated by the lower priority
   ChinaÕs environmental services market potentially         given to U.S. vendors and service providers in multi-
requires a very broad range of services. However, lack       lateral aid programs as a favor to providers from other
of awareness, protectionism, and opting for convention-      bilateral aid donors. A further disadvantage often cited
al engineering solutions currently make the reality of       by Chinese decision-makers is the often tumultuous
the market quite narrow and limited. As awareness pro-       political relationship between China and the U.S.:
gressively increases in the government and industry          when U.S. goods and services are procured, it is uncer-
sectors, much of the initial need is filled by local envi-   tain whether delivery can be completed or after-sales
ronmental institutes and private companies that general-     service can be guaranteed, in light of the frequent
ly have good engineering skills but lack innovative          threats of sanctions.



                                                                                      China Export Market Plan 63
    Additionally, some barriers faced by U.S. companies       Capacity and Awareness Building
and service providers are self-inflicted. A lack of under-
standing of Chinese business practices and sensitivities,        One of the single biggest breakdowns in ChinaÕs
unfamiliarity or impatience with the time-consuming           environmental protection apparatus today is a deficien-
process of relationship building, dependence on over-         cy of capacity and awareness. As discussed elsewhere
seas Chinese expertise (which is often resented) rather       in this document, many local EPBs lack clarity regard-
than local professionals, and a lack of understanding of      ing how best to approach the diverse and complex envi-
laws and regulations all contribute to the creation of        ronmental problems within their jurisdictions, industrial
misunderstandings and frustrations.                           leaders lack vision regarding the possibilities for clean
    Many of the barriers that U.S. investors face are the     production and eco-efficiency, and the dearth of com-
same ones that all foreign investors face, providing a        prehensive solutions that can benefit both the environ-
relatively level playing field from the perspective of        ment and the economy sometimes makes environmental
China-sourced complications. Many companies say that          protection a secondary priority after economic develop-
the single biggest barrier that limits U.S. competitive-      ment. Foreign investors might want to consider market-
ness in relation to that of other foreign service providers   ing equipment and carrying out consulting operations in
is the lack of a U.S. government bilateral assistance pro-    China through a method that disseminates information
gram. Bilateral institutions such as the Canadian             in regard to these deficiencies. Investment packages
International Development Agency (CIDA) and                   might also include components that seek to implement
GermanyÕs GTZ can exploit mechanisms that allow               corporate and industrial training, eco-efficiency capaci-
them simultaneously to act as development consultants         ties, health and safety management, and other initiatives
to the Chinese and to lay groundwork for private com-         that cover both environmental and economic needs. A
panies (from their respective countries) to win con-          number of Chinese companies already recognize eco-
tracts; in some cases, they are able to tie large sums of     nomic benefits through efficiency and sound manage-
multilaterally sourced funding to companies in their          ment. As ChinaÕs socialist market economy continues to
country by entering into co-financing operations (see         develop, the need for such efficiencies is increasing, as
Box 9). The return of the U.S. Trade and Development          are the demands for companies and consultants that can
Agency to China is a positive first step; however, the        provide the means to achieve them.
absence of the U.S. Agency for International
Development (USAID) is a glaring vacancy in the
realm of bilateral operations in China.                       Market-Entry Consulting

WTO and Environmental Services                                   A successful strategy used by several service
                                                              providers entering the Chinese market employs market-
   With ChinaÕs accession to the WTO, foreign service         entry companies to introduce potential partners or proj-
suppliers now may establish a commercial presence in          ects to prospective service providers. This allows a
China and provide environmental services in the form          foothold to be gained with a low financial commitment
of joint ventures with foreign majority ownership per-        or risk. Conversely, several U.S.-based associations and
mitted. Language in the U.S.-China bilateral agreement        market-entry groups have attempted to help their clients
indicates that ChinaÕs environmental services commit-         enter China with the aid of U.S.-based or U.S.-educated
ments cover sewage, solid waste disposal, cleaning for        Chinese professionals. Overall, the success rate of such
exhaust gases, noise abatement, nature and landscape          efforts has been low, as the value of market-entry con-
protection, and other environmental protection services,      sultants lies with their local presence and contact net-
yet they do not cover environmental monitoring or pol-        work.
lution source inspection.                                        Below, two specific approaches are presented that
   Although foreign service providers are generally           may be considered by a group of service providers
kept out of environmental monitoring and pollution            working through an association or consortium with a
source inspection, foreign firms are contracted to pro-       well-established office in China.
vide such services on an ad hoc basis. CH2M Hill, the
U.S. company that carried out air-monitoring operations       Specialized Representation Associations
in Sydney prior to the Olympic Games there, has been
contracted to perform air-monitoring operations in              Foreign investors seeking to operate in China might
Beijing as it prepares for the 2008 games.                    benefit from the development of a number of special-



64 U.S. Department of Commerce, International Trade Administration
ized, privately operated associations that simultaneously      management and training. Service providers with a
function as monitors for business opportunities in China       clear understanding of the needs discussed in the intro-
and as foreign technology and services sources. In addi-       duction of this chapter might be in a position to play
tion to helping form partnerships between end users and        the invaluable role of bringing together the most appro-
suppliers, the associations might facilitate legal, admin-     priate players for a particular project and then bridging
istrative, and logistical consulting. Specialized associa-     the gap between those players and the domestic enti-
tions might represent particular U.S. industries in            ties. It goes without saying that the central organizers
ChinaÕs environmental sector as a whole or direct atten-       of such a consortium must have extensive and pro-
tion toward particular industrial sectors in China with        found experience not only in the environmental sector
environmental needs. A strong need currently exists for        but in China as well.
an association that monitors opportunities and facilitates
participation in multilateral and untied bilateral assis-      Conclusion
tance operations. Such an association should not only
monitor for opportunities and keep its constituents               The services sector in China presents many opportu-
informed of potential projects at the very earliest stages     nities and challenges to U.S. service providers. On the
of assessment and development, but should also develop         one hand, U.S. services and technologies are respected,
the capacity to facilitate viable bidding for such projects,   yet on the other, they are at a distinct disadvantage com-
a task that is difficult, particularly for small operations    pared with many Western countries due to a lack of
and firms with no experience in doing so.                      bilateral funding and the tumultuous political relation-
                                                               ship between China and the United States. A bilateral
The Consortium Approach                                        environmental program in China would help level the
                                                               playing field with other Western countries and encour-
   Because of the logistical and financial constraints of      age Chinese entities to consider U.S. vendors for proj-
operating in China, as well as the increased capacities        ects. U.S. companies also need to take a long-term view
resulting from the pooling of experiences and                  of the Chinese market and establish long-term represen-
strengths, foreign investors may find it beneficial to         tation that actively markets and builds alliances on their
enter the market via a consortium scenario. Consultants        behalf. In the case of small and medium-sized compa-
and other service providers can work together to offer         nies unable to afford an in-country presence, associa-
complete packages of planning, design, financing,              tions or consortium relationships should be considered
engineering, implementation, and long-term operation           as a method of market entry.




                                                                                        China Export Market Plan 65
                                                     Chapter 8
                                    Resource Management


This section includes a number of resource management             The main concern regarding sustainable land man-
issues and technologies that have not been covered in          agement in China is food security. China has been expe-
other sections. Some subjects may not be appropriate           riencing a net loss of cultivatable land due to massive
for technology providers, but they may be appropriate          urbanization, especially in the fertile eastern regions
for consultants and innovative management and protec-          where the majority of the population resides. Even
tion systems providers.                                        worse, most additions to arable land resources have
                                                               been made by the reclamation of fragile grassland, wet-
   ChinaÕs territory encompasses the third largest land        land and coastal ecosystems. Major land reclamation
area in the world, after Russia and Canada. However,           work, such as that in the desert region of Xinjiang, has
land resources per capita fall far below world averages.       generated an increased demand for irrigation water, but
According to the Food and Agriculture Organization,            unsustainable water practices have led to the deteriora-
China accounts for 22 percent of the worldÕs population        tion of nearby water-rich areas.
but has only 10 percent of the worldÕs arable land. The
arable land totals about 130 million hectares, or only 0.1
hectare per person. Additionally, the quality of the arable    Policy and Legislation
land is generally poor, with almost 80 percent classified
as low- or mid-yield land. Unsustainable agricultural             Environmental awareness has significantly
and irrigation practices, water supply problems, severe        increased since 1978, and higher priority has been
degradation due to pollution, deforestation, erosion, and      placed on the strengthening of policies related to land
urbanization further exacerbate the problem.                   management. Legislation, administrative research,
   China is rich in grasslands of many varieties, which        institutional restructuring, and education have all con-
cover over 40 percent of its territory. A massive push to      tributed to a much stronger framework for conservation
ÒimproveÓ the grasslands for agriculture in the 1950s          and land resource planning. Administrative actions
and 1960s led to rapid erosion and ultimately desertifi-       have included merging the National Land Bureau and
cation. Intense livestock production, overgrazing, and         the Ministry of Geology into the Land and Natural
permanent settlement of traditional nomads contributed         Resources Ministry and reclassifying the Ministry of
to further deterioration. Over a third of the grasslands       Forestry as the State Forestry Bureau. Since the imple-
are overgrazed, and the desertified areas have doubled         mentation of these changes, SEPA has been the main
in size since the mid-20th century.                            entity responsible for the administration of rural ecolo-
   According to ChinaÕs fourth forest resources survey,        gy and conservation. However, at the ministry level,
Òforested landÓ covers about 260 million hectares,             there is still some confusion: while SEPA is the highest
although only about half of this is actually covered by        authority relating to ecology, the Ministry of Water
forests. Forests in China suffer from overlogging, ille-       Resources is responsible for water and soil conserva-
gal logging, and conversion to agricultural use. The           tion, and the Ministry of Agriculture oversees farming
aftereffects of forest destruction are noticeable in the       and productive lands. There is no national parks serv-
form of serious soil erosion and massive flooding in           ice or the equivalent, and the setting aside of nature
certain areas. Efforts are underway to arrest this situa-      reserves is undertaken in a sporadic and quantity-driv-
tion. Since the 1970s, deforestation trends have been          en manner.
reversed due to major afforestation efforts. Because of           The government has expressed several ambitious
this, the area of forested land has increased, but the state   goals concerning land use and management for the next
of forests in terms of biodiversity and age continued to       10 to 20 years. Priority is being placed on undoing the
decline right up until 1998, when the government               damage of the past half century by increasing and pro-
imposed a logging ban. Even now, this ban is consis-           tecting forests and grasslands as well as restoring wet-
tently violated.                                               lands, halting the spread of desertification, and



66 U.S. Department of Commerce, International Trade Administration
preventing further arable soil loss in order to maintain        Xinjiang and Gansu provinces (see the map at
the current level of self-sufficiency in food production.       www.din.net.cn).
   Shortfalls of the Ninth Five Year Plan are not affect-         Desertification contributes to a host of problems in
ing the Tenth Five Year Plan. Goals stated in the Tenth         China, in both rural settings and urban centers.
plan cite an increase in percentages relative to the            Unfortunately, desertification is often caused by prob-
amounts and distribution of resources at 1995 levels;           lems to which it contributes, forming a vicious cycle.
however, few 1995 baselines relevant to these percent-          These include:
ages exist. In addition, certain definitions are vague, as      q   Reductions in farmland. Heavy losses of arable land
demonstrated by the overlap between Òreduced farm-
                                                                    are devastating the economies of many communi-
landÓ and Òeroded areas.Ó
                                                                    ties, forcing them to increase their exploitation of
   Despite the policy advances of the past decade, many
                                                                    marginal land. Overuse of water resources and over-
government organs and state mouthpieces remain con-
                                                                    grazing destroy the resources that many rural com-
fused, as illustrated by a recent statement issued by the
                                                                    munities depend on.
minister of land and natural resources:                         q   Sandstorms. Dust storms and sandstorms through-
 China will strengthen management of farmland and prevent           out the country are noticeably increasing in both
 the destruction of cultivated land; it will press ahead with       intensity and number. A series of sandstorms that
 improvement of land, intensify reclamation efforts, and
 appropriately exploit the reserve resources of cultivated          struck Beijing in the springs of 2000 and 2001
 land. Meanwhile, it will pursue the policy of tapping the          caused millions of dollarsÕ worth of property dam-
 potential of land for construction purpose and vigorously          age. A particularly ferocious sandstorm in 1993
 promote the intensive use of land. (PeopleÕs Daily, Feb. 1,        killed 78 people in the western province of
 2001. Emphasis added.)                                             Xinjiang, and a sand-and-snow blizzard at the
   The effectiveness of resource regulation and policy is           beginning of 2001 killed 39 people.
hampered by conflicts of interest, often within and             q   Soil erosion. Desertification in some parts of the
among the very entities that are responsible for regula-            country affects the resources of other regions.
tion. The State Forestry Bureau, for example, is on the             Desertification of the grasslands of the northern
one hand responsible for protecting and monitoring the              regions, for example, adversely affects the rivers of
national forest reserves. The same bureau has tradition-            the south. The north also contains the headwaters
ally been involved in the exploitation and use of nation-           for many of AsiaÕs major rivers. As grasslands and
al forest resources, often benefiting directly from the             other types of cover decrease, soil washes down-
sale of licenses and contracts for such activities or indi-         stream, contributing to water pollution and floods
rectly from the formation of companies that conduct                 farther down the Yangtze and Yellow Rivers.
business using these resources.
   Additional and perhaps more dangerous constraints            Anti-Desertification Efforts
to resource management are coming into focus as the
government restructures to meet the demands of a more              Tree and grass planting seems to be the most
deregulated and global economy. As the government               effective way to combat desertification for now.
relaxes control over economic activities, it needs to take      Reforestation and shelterbelt efforts are increasing. In
steps to ensure firmer control over resource utilization,       December 2000, the chief of the State Forestry Bureau
an outcome that seems unlikely given current efforts.           announced that $11.6 billion would be spent over the
                                                                next 10 years on forest protection and reforestation
                                                                efforts. However, the majority of reforestation consists
Desertification                                                 of plantations of cedar in the South and poplar in the
                                                                North, which do not adequately compensate for the
    Desert regions, which cover over a quarter of China,        loss of biodiversity and old-growth forests.
are expanding. This expansion accelerated with unsus-              Typical methods of preventing sand movement and
tainable land reclamation, agricultural practices, and          stabilizing the advance of sand areas include the erec-
livestock production that began in the 1960s and 1970s,         tion of barriers and the planting of scrub or grasses on
as well as urban development and deforestation                  the windward sides of dunes.
throughout the 1990s. Desertification affects two dis-             One method to control desertification is the planting
tinct regions in China; most notably, the northern plains       of seabuckthorn, a local economically valuable and
of Inner Mongolia and several provinces to the south of         hardy grass. United Nations Development Program
it, but also the drainage basins in the West, mostly in         (UNDP) and Food and Agriculture Organization efforts


                                                                                         China Export Market Plan 67
are concentrating on the viability of this plant as an eco-          highly alkaline soil. A Sino-Japanese cooperative proj-
nomically profitable solution to the loss of farmland.               ect is underway to improve the quality of saline soil in
                                                                     North ChinaÕs Shanxi Province by applying soil condi-
                                                                     tioners that are a byproduct of Shanxi power plants.
Salinization and Irrigation

   China is predisposed to heavily salinized lands, espe-            Soil Remediation Technology
cially in its western regions. Furthermore, ongoing salin-
ization in China results from poor irrigation and other                 Pollution caused by landfill leakage, pesticides,
water-use techniques in areas with scarce water                      industry, and heavy mining has harmed over 13 million
resources. According to recent World Bank estimates,                 acres of farmland in China. Although soil remediation
salinized land occupies about 80 to 100 million hectares,            technology is typically expensive, innovative approach-
10 percent of which are cultivated land. Salinized coastal           es may find a niche, as the government sees this as a
zones in the east also serve as a source of sandstorms.              high priority.
   The Ministry of Water Resources estimates that the
rate of salinization is actually decreasing due to pre-
                                                                     Irrigation Technology
vention and remediation measures introduced in the
late 1980s.                                                             The key to alleviating ChinaÕs flood and drought prob-
                                                                     lems is water efficiency. Implementation of water-effi-
                                                                     cient irrigation systems does not require high technology
Best Sales Prospects                                                 or great expense. It does require a knowledge transfer in
                                                                     regard to system design, efficient use of resources, and
Soil Reclamation Technology                                          the manufacture of parts that are designed for efficient
   In order to increase overall crop yields, the agricul-            purposes. Multilaterally financed irrigation projects use
tural sector is in great need of innovative and low-cost             efficient equipment and design in isolated projects, but
equipment or technology that can improve the yield of                these techniques are not replicated and do not spread.


 Box 8. Plantation Timber Products Case Study
 Plantation Timber Products, a Singapore-based company, recently made headlines as one of the most successful foreign-fund-
 ed companies in China. After embarking on an ambitious economic development project that helped restructure the timber
 industry in inner China, the company secured an International Finance Corporation (IFC) loan for an afforestation project in
 Hebei Province.
    Plantation Timber ProductsÕ efforts encourage farmers in poverty-stricken western regions to substitute sustainable tree-
 farming techniques for traditional agriculture. The switch has had several effects: an improved economy in the region with
 direct effects for farmers, the stabilization of large tracts of flood-prone Yangtze valley areas, and the development of sustain-
 able wood reserves.
    In some cases, timber plantations are criticized for encouraging the destruction of biologically diverse native forests for the
 plantation of one species of fast-growing timber. ChinaÕs case is different. With so much of the countryÕs natural forest com-
 pletely devastated, timber plantations represent a reforestation effort that provides economic benefits through the transmission
 of sustainable development practices. Plantation Timber Products is gaining the approval and trust of the government as well
 as of major multilateral lending organizations such as the IFC.




68 U.S. Department of Commerce, International Trade Administration
Selected References and Web Sites                      Web Sites

References                                             Hunan and Nature in Harmony; China Environment
                                                       and Development Information: www.enviroinfo.org.cn
Jiang Xueqin, ÒStanding Tall: Plantation Timber        (Categories include: land resources, land use, desertifi-
Products Overcomes the Odds to Succeed in ChinaÕs      cation, salinization, soil erosion, land degradation,
Impoverished Interior.Ó Far Eastern Economic Review,   sandstorms. Consists of a collection of articles perti-
Sept. 7, 2000.                                         nent to this subsector.)

ÒPollution, Landfills Devouring Agriculture.Ó          ChinaOnline agriculture section:
ChinaOnline, June 9, 2000.                             www.chinaonline.com/industry/agriculture/agricul-
                                                       ture_center.asp
ÒSino-Japanese Project to Upgrade Saline Soil.Ó
PeopleÕs Daily. June 22, 2000.                         United Nations Food and Agriculture Organization:
                                                       www.fao.org
ÒSustainable Agriculture and Rural Development in      (Contains project documents and publications of inter-
China, Part 1: The Agro-Ecosystem and ChinaÕs Rural    est in the area of land resources.)
Economy.Ó Promotion of Sustainable Agriculture and
Rural Development in China: Elements for a Policy
Framework and a National Agenda 21 Action
Program. (Beijing: FAO/UNDP/Ministry of
Agriculture of the PRC, 1997.)




                                                                               China Export Market Plan 69
                                                   Chapter 9
                       Finance Programs and Resources


There are five financial sources pertinent to environ-       ment and from commercial competition, which necessi-
mental investment in China today:                            tates increased production efficiency. Additionally,
                                                             access to many governmental funds requires enterprise
1. Government investment funds
                                                             contributions.
2. Policy and commercial bank loans
                                                                As discussed further in Chapter 10, projects funded
3. Enterprise investment (SOEs, the domestic private
                                                             by multilateral and untied bilateral assistance offer the
   sector, JVs, and WFOEs)
                                                             most secure point of market entry for foreign exporters
4. Multilateral and bilateral assistance programs
                                                             and foreign-invested enterprises due to relatively strict
5. Securities
                                                             assessment and implementation standards as well as
   Government investment funds are capitalized prima-        guaranteed available hard currency. This chapter
rily through central budget funds earmarked for a spe-       includes a brief introduction to the major assistance pro-
cific use, or through national and subnational               grams active in China, including points on how best to
governments and affiliated agencies via charges and          monitor their current affairs.
levies on individuals and enterprises. Theoretically,           Although securities may one day play a significant
these resources are available to all Chinese legal bodies,   role in environmental financing, the financial sector
including JVs and WFOEs. However, in reality they are        remains generally inaccessible to the environmental
primarily reserved for SOEs and occasionally for high-       sector at this time. The securities markets of China are
profile JVs that authorities consider to be of special       far too unregulated and immature to support creative
importance. Although these funds are rarely made avail-      environmental finance tools, and they are much too pro-
able to foreign investors, they should be understood, as     tected (i.e., reserved for the purposes of larger, anointed
they constitute a significant source of funding for SOEs     SOEs) to service capital demands for environmentally
that may contract foreign-invested enterprises to service    oriented startups (although a number of environmental
their needs.                                                 enterprises are listed). There is some discussion regard-
   The structure and availability of policy and commer-      ing the development of a green investment fund in
cial bank loans, like those of government investment         China; however, its implementation is still a long way
funds, are important to foreign investors in terms of        off, and the financial climate requisite for its success is
how they apply to the Chinese enterprises that may con-      arguably even farther away. Because securities are not
tract their services. Both policy and commercial banks       immediately applicable, there is no further discussion of
continue to function as the tools of government-direct-      them in this chapter. See Chapter 2 for more informa-
ed spending, but commercial banks are becoming               tion on ChinaÕs macroeconomy and economic issues.
increasingly independent in the decision-making
process when extending loans to operations that have
not been anointed by government planners. Both types
                                                             Government Investment Funds
of banks claim to be increasingly cognizant of commer-
cial viability when making loan decisions, and at least      Local Environmental Funds
in theory they are granting loans to those ends.
Nonetheless, the ultimate function of Chinese banks is          Local environmental funds are essentially rotating
to service the financial needs of state and provincial       funds capitalized by pollution levies, or non-compli-
planners. Very little in the way of preferential environ-    ance charges, imposed upon enterprises discharging
mental loans is available.                                   pollutants in excess of relevant national standards.
   Enterprises themselves are expected to produce            Approximately 80 percent of the revenues generated by
increasing amounts of money to furnish environmental         these funds are redirected to the polluting factories from
protection investments. Pressure to do so stems both         which they came, in the form of grants (or loans in the
from government policies decreeing pollution abate-          case of the Òspecial fundÓ), with the intention of financ-



70 U.S. Department of Commerce, International Trade Administration
ing pollution abatement projects. The remaining 20 per-         include demonstration projects addressing key pollution
cent augments EPB budgets and is theoretically aimed            issues and projects with eco-efficiency capacities, as
at enhancing capacity-building programs. Enterprises            well as the closure, revamping, or removal of major pol-
submitting proposals for grants from this source are            luting enterprises.
required to match a proportion of the funds sought                 Although finance use under the special fund provi-
through means of their own.                                     sions is reportedly more efficient, effective, and direct-
   Various models for the collection and distribution of        ed toward specified and appropriate uses, a number of
these funds exist throughout the country, but in each           issues are notable, including the fundÕs relatively small
case procurement and disbursement responsibilities do           size, inaccessibility to enterprises that have not paid
not extend beyond the provincial government. In all             pollution levies, continued government intervention,
cases, city, county, and provincial government bodies           and various other administrative issues.
have various degrees of involvement in collecting and
redistributing these finances; however, the central gov-        The National Environmental Fund
ernment neither receives a share of the revenues nor
plays a role in determining how they are used. In most             There has been some discussion of the development
cases, the funds are jointly managed by environmental           of a national environmental fund, ostensibly to facilitate
and financial agencies, and in some cases commercial-           comprehensive, large-scale projects and to act as a high-
ly-oriented investment corporations have been estab-            level monitor of overall investment practices. SEPA has
lished. The corporations are not, however, completely           on several occasions solicited opinions from a number
independent, as they are established and monitored by           of domestic government bodies, as well as the World
the associated EPBs.                                            Bank and the Asian Development Bank, in regard to the
                                                                merits of establishing such a fund, its feasibility, and
The Special Fund for Pollution Control                          what form it might take. There is little indication that
                                                                such a fund might come into existence any time soon.
   The efficiency of local environmental funds is low           Many national-level government bodies would need to
because: local environmental funds traditionally have           collaborate and agree upon its form and function, some-
been disbursed as grants; the finances are recycled to          thing yet to be attempted or accomplished.
enterprises that initially capitalized the funds through
levies (reportedly reinforcing a perception among the           Other Levy-Based Funds
contributing enterprises that they own the funds); and,
after environmental funds have been granted to enterpris-          Two other government funds used to finance envi-
es, project selection is left mainly to the enterprisesÕ dis-   ronmental protection, the levy for enterprise renova-
cretion. In 1998, environmental investment policy began         tions and redevelopment and the levy for urban
shifting from grants to loans and, in keeping with this         infrastructure projects, are capitalized through various
shift, a special fund for pollution control was initiated.      fees and levies as well as government allocations. Only
   The working mechanisms of the special pollution              a small portion of the funds generated by the levy for
control fund are established by EPBs at provincial or           enterprise renovations and redevelopment is focused on
municipal levels and remain entirely under the control          environmental protection (in 1998, 0.28 percent of the
of the EPB finance departments, except in some regions          fundÕs total expenditure was environmentally oriented,
where semi-independent investment corporations have             down from 1.68 percent in 1991). The fund is a rela-
been established under EPBs to manage the accounts.             tively small overall contributor to environmental invest-
The fund is capitalized by transfers of 20Ð30 percent of        ment and is viewed as an underachiever in this regard.
the revenue from pollution levy funds each year, inter-            Funds from the levy for urban infrastructure projects,
est payments on loans paid out through the fund, allo-          on the other hand, have increasingly financed urban
cations from local governments, and so forth. Loans are         environmental infrastructure (see Figure 9.1). Local
provided at low interest rates (2.4Ð3.0 percent) to enter-      governments are directing more urban infrastructure
prises that previously paid pollution levies, are clearly       development funds to environmentally-specific projects
capable of repaying the loan, can match a determined            (such as water and waste management) and are increas-
proportion of the loans from their own finances, and            ing their own contributions. This fund accounted for 58
have project objectives (which must be clearly stated at        percent of domestically sourced investment in pollution
the point of application) that are deemed feasible.             control in 1999, as opposed to just over 32 percent in
   Priority applications for loans through these funds          1991. Nonetheless, urban environmental infrastructure



                                                                                         China Export Market Plan 71
remains woefully inadequate, with urban sewage treat-         A number of other funds and organizations exist, such
ment rates reaching only 30 percent and waste collec-      as the China Foundation for Environmental Protection.
tion rates reaching only 60 percent in 1998. In both       However, their activities are minimal. Other than acting
cases, the quality of treatment carried out was            as showpieces and bureaucratic administrations, they
generally of lesser quality than is necessary to achieve   serve little purpose for environmental protection.
notable results.

Government Support Funds for Environmental                 Policy and Commercial Bank Loans
Enterprises
                                                           Policy Banks
   The only government ministry-furnished support
fund in any way directed toward environmental tech-           Of ChinaÕs three policy banks, the China
nology development is the Ministry of Science and          Development Bank (CDB), the Export-Import Bank of
TechnologyÕs Innovation Fund for Small Technology-         China, and the Agricultural Development Bank of
Based Firms. The fundÕs purpose is to facilitate the       China, only the CDB works to facilitate investment
transformation of scientific research achievements into    directly associated with environmental protection. CDB
technological innovations, particularly those that can     loans for environmentally-related projects are generally
play a significant role in economic growth.                long-term loans, and they are not offered at preferential
Environmental protection innovations are eligible, and     interest rates. The China Ex-Im Bank finances environ-
the fund is available to all registered legal bodies in    mentally-related investments, but it has no special
China, including JVs and WFOEs.                            program geared specifically toward environmental
   The Innovation Fund for Small Technology-Based          investment.
Firms is gaining attention and is considered to be run        The CDB apparently intends to draw a balance
relatively well, with accrued finances of over RMB 1       between functioning as a tool to implement government
billion as of 1999. Proponents of the development of       mandates and granting loans based on commercial via-
an environmental industry investment fund may use          bility. All CDB loans undergo thorough feasibility stud-
the Innovation Fund for Small Technology-Based             ies that bear significant weight in the final decision to
Firms as a model upon which to base a fund specifi-        grant a loan. However, political pressure still exerts sig-
cally geared toward the support of environmental tech-     nificant influence, and many loans are provided through
nology development.                                        the bank to facilitate programs that are deemed critical,



72 U.S. Department of Commerce, International Trade Administration
despite poor commercial viability. CDB finances are               percentage of the interest is furnished by budgetary
domestically sourced, including a significant amount              finances from the local government most closely asso-
of capital drawn through bonds issued directly by                 ciated with the project. This scheme has not seen
the bank.                                                         tremendous success, however, as local governments
   The World Bank and the Asian Development Bank                  choose not to accept the burden, banks consider the
(ADB) work with the CDB in granting joint loans, which            extra steps of collecting interest from numerous
constitute a small percentage of the bankÕs lending. All          sources troublesome, and commercial viability
joint loans are subject to the relatively strict assessment       remains difficult to achieve.
standards of the multilaterals, thereby increasing the
assurance of commercial viability for projects that have          The State Development and Planning Commission
received the loans. As a result, the likelihood for timely        and Bank Loans
repayment of joint loans is increased. Because the loans
are all long term, it is still difficult to determine the prog-      SDPC approval is necessary to obtain preferential
nosis for their return rates.                                     commercial bank loans, policy bank loans, and bilater-
   It is also difficult to assess the commercial viability        al or multilateral financing. Regional and local devel-
of non-joint loans by CDB that do not undergo feasibil-           opment and planning commissions must review all such
ity studies by the multilaterals. World Bank and ADB              projects for feasibility and approval. Any project over
involvement in the CDB presumably affects the know-               $30 million must be approved at the national level.
how and standards of the development bank, helping it
to hone its future viability. In its current manifestation,
the commercial intentions of the bank continue to be              Enterprise Investment
waylaid by political pressure from central and provin-
cial planners.                                                       About 55 percent of the $85 billion that CRAES
                                                                  expects is needed to achieve the environmental goals of
Commercial Banks                                                  the Tenth Five Year Plan is likely to be covered by busi-
                                                                  ness enterprises themselves. Most loan programs and
   ChinaÕs commercial banks, like its policy banks,               preferential funding for enterprise development and
claim that increased attention is being paid to com-              upgrades require some degree of fund matching from the
mercial standards. Particularly when extending loans              enterprises, and regulations, particularly the Three
to small operations, commercial banks increasingly                Simultaneous Steps policy, impose significant spending.
look at the commercial viability of the projects at                  The Three Simultaneous Steps policy requires enter-
hand. Commercial banks are gaining more independ-                 prises to take steps to prevent and control pollution
ence from central planners, particularly in relation to           simultaneously with the design, construction, and oper-
lending practices toward smaller operations. In this              ation of projects, as opposed to addressing pollution
context, commercial banks are wary of financing envi-             issues after project implementation is completed.
ronmental projects that are not government mandated,              Revenues generated as a result of compliance with the
due to the long-term and low-yield nature of such                 policy have grown steadily since 1991 and have consis-
loans. However, commercial banks, like policy banks,              tently represented about 4 percent of total expenditure
generally heed central and provincial government                  on construction projects. However, the policyÕs share of
mandates for financial support of large projects requir-          total investment in environmental protection has trend-
ing massive expenditure.                                          ed down, suggesting increased performance on the part
   For the most part, commercial banks do not offer               of other investment channels (see Figure 9.2).
preferential terms for environmental projects. Any
firm that does manage to arrange a commercial
bank loan for environmental investments pays the                  Multilateral and Bilateral Assistance Programs
standard interest rate of approximately 5 percent. The
exceptions are those initiatives with SDPC (or the                   About 15 percent of environmental funding in China
appropriate lower-level development and planning                  is sourced from multilateral and untied bilateral lending
commission) approval. Such initiatives qualify for a              agencies. Aside from financial assistance, such lending
preferential interest payment program, at the discre-             programs aid Chinese development by guiding invest-
tion of the lending bank. Investors repay the loan at an          ment toward feasible and financially viable projects, by
interest rate of approximately 2 percent; the remaining           pressing for the development of stronger assessment



                                                                                          China Export Market Plan 73
and implementation standards, and by offering techni-         project details are finalized, the lending institution and
cal assistance, policy advice, seminars, and training.        various Chinese government bodies must approve the
                                                              final plan. Implementation generally begins within a
                                                              few months of final approvals, by which time contrac-
The Project Cycle                                             tors and suppliers should already be in contact with the
    Local or provincial governments initiate project pro-     appropriate implementing agencies.
posals that need foreign financial assistance. Some proj-        Chinese implementing agencies, not lending organi-
ects are listed on the Agenda 21 or the Trans-century         zations, are responsible for contracting goods and serv-
Green Projects list. MOFTEC screens all proposals and         ices. Firms that have identified projects suited to their
is responsible for ensuring that all loans associated with    capacities should approach the implementing agencies,
a particular project can be repaid. Ministry of Finance       not the lenders. This should be done as early on in the
and SDPC approval are usually required at some point          project assessment stage as possible, as waiting for
in the initial project cycle, and SEPA may screen proj-       projects to go out for bid before initiating contact will
ects as well. After clearing all domestic hurdles, a proj-    result in failure.
ect is forwarded to the lending agencies for the lengthy         There are a number of ways to monitor business
review and approval processes.                                opportunities through multilateral and bilateral assis-
    The Ministry of Finance meets with donor                  tance programs:
agencies annually to discuss financing arrangements.          q   Each institution maintains a Web site, many of
Government and lending agencies then collaborate to               which are conscientiously updated. However, not all
analyze project details and feasibility further.                  sites provide information well enough in advance to
Consulting firms should position themselves for future            keep potential bidders prepared to tender in a timely
involvement in particular projects at this stage. Detailed        fashion. Firms need to contact these institutions
feasibility studies are required and the borrowers, who           proactively in order to keep a close eye on develop-
are responsible for project preparation, often need to            ments and should demonstrate interest in particular
augment their in-house analytical capabilities.                   projects as early as possible.
Contractors and equipment suppliers should create con-        q   UN Development Business, published by the United
tacts at this point to determine whether or not their serv-       Nations Department of Public Information, is a
ices or goods will be procured for the project. Once the          comprehensive resource for enterprises providing


74 U.S. Department of Commerce, International Trade Administration
  goods and services to projects financed by the                tinues to grow. Soft loans (i.e., low-interest loans) and
  major multilateral institutions. It is available by           grants are no longer being made available.
  subscription online or in hard copy. Subscription                The World Bank Group maintains an extensive Web
  information is available at www.devbusiness.com/              site (www.worldbank.org/) that contains a section par-
  about.cfm.                                                    ticular to China (The World Bank Group in China,
                                                                www.worldbank.org.cn/English/home.asp). Included on
World Bank                                                      the site are numerous resources such as the World Bank
                                                                Monthly Operational Summary, (www.worldbank.org/
   As of June 2000, World Bank commitments to China             html/opr/procure/MOS/contents.html), research papers,
were in excess of $34 billion, accounting for a total of        project descriptions, and statistics.
226 projects. About half are still under implementation.
The bankÕs primary targets are poverty alleviation,             Asian Development Bank
infrastructure development, and human resource devel-
opment. Aside from initiatives aimed specifically at               The Asian Development Bank (ADB) is a develop-
environmental protection, many World Bank projects              ment finance institution owned by 59 members. The
afford residual benefits to those ends; for example, all        bankÕs goals, which are effected through loans and tech-
World BankÐassisted power projects aim to incorporate           nical assistance, are poverty reduction, economic growth,
environmental sustainability in their design and there-         human development, improved status for women, and
fore draw on environmental industries.                          environmental protection. Only nationals of ADB mem-
   ChinaÕs environmental protection sector has been             ber countries, of which the United States is one, are per-
the fastest-growing recipient of World Bank loans over          mitted to bid on service and procurement contracts for
recent years. In fiscal year 2000, the World Bank fur-          ADB-financed projects. The bank places considerable
nished $700 million in loans for three environmentally          stock in the BOT and build-operate-own models, which
oriented projects: the $349 million Second Beijing              are being put to use in the PRC with increasing support
Environment Project, aimed at air and water pollution           from the government (see Chapter 10).
alleviation in Beijing; the $150 million Hebei Urban               The ADBÕs country assistance plan, available online
Environmental Project, with a strong emphasis on                at www.adb.org/China/default.asp, outlines the intend-
wastewater management and a lesser focus on capacity            ed assistance program for the PRC. The social infra-
building for industrial pollution control; and the $200         structure and environment section of the plan defines
million Chongqing Urban Environment Project, with               urban development and environmental protection goals
an emphasis on solid waste management, wastewater               including waste management; air and water quality
management, water supply and monitoring, and capac-             issues; capacity building for and implementation of
ity building for urban management and environmental             market-based instruments for environmental manage-
rehabilitation. The bank also works as an implementa-           ment; strengthening of institutions, policies, and man-
tion agency for the Global Environment Facility (GEF)           agement systems; promotion of cleaner technologies;
and the MontrŽal Protocol.                                      and promotion of sustainable natural resource utiliza-
   Future environmental focuses will include air and            tion. The plan also portends a shifting focus toward
water pollution, wastewater treatment, vehicle emis-            the western regions, in keeping with ChinaÕs Western
sions control, and reduced coal use in urban areas.             Development Plan.
Focus is also shifting toward the poorer and institution-          Guidelines for procurement and consulting services
ally weaker inland provinces. As of 2000, nearly 70 per-        are available online at www.adb.org. The ADB publica-
cent of recent and proposed World Bank lending                  tion Business Opportunities outlines opportunities for
targeted the nationÕs interior, as opposed to 50 percent        vendors and consultants, is updated regularly, and is
several years earlier. One intention of this shift is to mit-   available online and free of charge at
igate environmental impact as development in the                www.adb.org/business/opportunities/default.asp. The
region is pushed forward.                                       bank also maintains two data banks, one each of con-
   The structure of World Bank assistance to China is           sulting firms and individual consultants, known respec-
changing, drawing a mixed reaction from experts. The            tively as DACON and DICON. Bank staff refer to
bank still categorizes China as a Òdeveloping country,Ó         the data banks during the initial consultant selection
but it is no longer considered one of the less-developed        process for ADB-financed projects. Registration quali-
countries. Thus, China is increasingly being expected to        fications and information are available online at
fund its own development as its domestic economy con-           www.adb.org/consulting/dacon.asp. The country assis-



                                                                                         China Export Market Plan 75
tance plan is available at www.adb.org/China/                        services that benefit the environment and emphasize
default.asp.                                                         eco-efficiency by identifying and developing innova-
                                                                     tive private sector initiatives with environmental bene-
International Finance Corporation                                    fits and by integrating environmental opportunities into
                                                                     the project cycle wherever possible. The EPU draws on
   The International Finance Corporation (IFC) oper-                 IFC resources and, when applicable, other sources such
ates under the supposition that sustainable economic                 as the GEF. EPU projects, like all IFC projects, must be
growth based on private investment and successful                    within the private sector, be technically sound, have
entrepreneurship is the cornerstone to poverty allevia-              good prospects for profitability, and benefit the local
tion. Thus, it works to further the development of the               economy. The main sectors targeted by the EPU are
non-state sector in developing countries, foster the                 biodiversity, climate change and greenhouse gas reduc-
development of financial institutions, and advise private            tion, energy efficiency, technology development, pollu-
companies and governments in achieving such ends.                    tion abatement, renewable energy, solid waste
   In fiscal year 2000, the IFC approved $95 million in              management, sustainable agriculture and forestry, sus-
financing to China. The current strategic emphasis                   tainable tourism, water supply and wastewater treat-
includes enterprise reform and private sector develop-               ment, and environmental investment fund
ment, increased involvement in financial sector                      development. The IFC office in Beijing has expressed
development, continued involvement in western devel-                 a good deal of interest in carrying out environmentally-
opment, support for industry rationalization and SOE                 related projects and can assist investors in accessing
reform, increased private participation in infrastructure            the capacities of the EPU.
and social sector development, and continued limited                    Enterprises seeking EPU assistance should submit
recourse financing for projects bringing technology and              applications via the IFC. There is no formal application
management skills into China.                                        process by which to do this. Both Chinese and U.S.
   The IFCÕs Environmental Projects Unit (EPU)                       companies can directly approach the IFC in Beijing or
works to accelerate market acceptance of goods and                   Washington, D.C. A preliminary review is required


 Box 9. Opening Doors Through Co-financing and Concessional Funding
 The initial outlay of funds by bilateral government organizations to assist development and environmental protection in China
 can generate contracting opportunities and financing for private investors. Most bilateral assistance is tied to contractors in the
 country of origin and helps facilitate the development of a market presence that over time may lead to further contracts. Bilateral
 spending can open channels by which to tie outside funding to contractors that are nationals of the bilateralÕs origin. In China,
 where relationships are of great importance, spending to enhance domestic initiatives (such as CanadaÕs spending in support of
 the China Council for Sustainable Development) has built relationships that have created well-established inroads. Except for
 the United States, every major donor country engaging in development assistance throughout the world is active in China. The
 United States has several small-scale operations, such as the Trade and Development Agency (www.tda.gov); however, no U.S.
 program in China compares to the programs of such countries as Germany, Australia, Canada, and others in terms of scale,
 financial capacities, or overall impact.
     Bilateral assistance agencies that co-finance operations with the World Bank and the ADB are essentially able to tie entire
 loan packages for technical assistance projects to consultants and technology providers from their own countries. Technical
 assistance projects through the ADB often draw grants in the neighborhood of $750,000. Bilateral assistance agencies can cover
 a portion of such loans in the form of a grant, equaling, for instance, $300,000. In doing so, the bilateral can take over pro-
 curement operations for the project and source equipment, consultation, and management training, entirely from its own coun-
 try, in essence transforming the entire $750,000 (the $450,000 grant from the multilateral and the $300,000 grant from the
 bilateral) into tied financing. Bilaterals engaging in such co-financing operations have created contracting opportunities for pri-
 vate enterprises in their respective countries, generating revenues several times the outlay of the original grant.
     The Canadian government has financed both the first and second five-year budgetary rounds of the China Council for
 Sustainable Development, each equaling investment of around $5 million. The China Council for Sustainable DevelopmentÕs
 purpose is to maintain high-level consultation on sustainable development between the Chinese government and representatives
 of governments, donor agencies, and multinational corporations. Through its significant financial and administrative involve-
 ment with the council, the Canadian government has provided a tremendous inroad for private Canadian firms. In this way, a
 country with a relatively small development budget has facilitated good will and private sector contracts for its national indus-
 tries far exceeding its original investment.




76 U.S. Department of Commerce, International Trade Administration
before the IFC decides whether a full feasibility study      descriptions of upcoming projects and calls for bidding.
will be carried out.                                         Specifics regarding these programs and the potential for
   The IFCÕs Web site can be accessed at www.ifc.org,        business opportunities are generally not noted on the
where it is possible to link to the EPUÕs site, www.         Web site and should be sought directly from UNDP or
ifc.org/enviro/EPU/epu.htm. In addition, the IFCÕs           the implementing agency.
ÒChinaÕs Emerging Private Enterprises,Ó the first com-          UNDP operational plans in China are laid out
prehensive analytical study of ChinaÕs emerging private      through the agencyÕs country programs. CP4, also
sector, is available online at www.ifc.org/publications/.    known as Country Cooperation Framework 1, was com-
                                                             pleted in 2000. The time is right for interested suppliers
Multilateral Investment Guarantee Agency                     and consultants to begin interaction with UNDP and its
                                                             various implementing agencies. SEPA, Agenda 21, and
    The Multilateral Investment Guarantee Agency             the China International Center for Economic and
(MIGA) encourages foreign direct investment in devel-        Technical Exchanges are UNDP implementation agen-
oping countries by furnishing investors with political       cies (see Appendix B, China Contacts list).
risk insurance against such possibilities as transfer           UNDPÕs Web address is www.undp.org. China-
restriction, expropriation, contract breach, civil distur-   specific UNDP information is available at www.unchi-
bance, and war. The agency also helps developing coun-       na.org/un/undp.
tries promote private investment opportunities through
its Investment Marketing Service (IMS). As of late           United Nations Industrial
2000, MIGA had 18 contracts of guarantee, with liabil-       Development Organization
ities totaling $130 million, benefiting infrastructure and
manufacturing in China.                                         The United Nations Industrial Development
    Current IMS projects include capacity building for       Organization (UNIDO) is a specialized UN program
attracting foreign direct investment in Guizhou as well      working for the development of sustainable and eco-
as collaboration with UNDP China and the World               nomically competitive industry in developing nations.
BankÕs Foreign Investment Advisory Service to pro-           Many of UNIDOÕs current operations in China have
mote investment in the Tumen River region, a common          components that are directly or indirectly associated
border zone delineated for economic cooperation              with environmental technology providers. Focuses
among Russia, North Korea, and northeastern China.           include industrial pollution and waste management,
    MIGAÕs Investment Marketing Service manages an           cleaner production programs, the phasing out of ozone
on-line information service called IPAnet, which offers      depleting substances, and institutional capacity build-
information on investment opportunities worldwide.           ing. Listings of current and past UNIDO programs in
Nearly 300 China-based individuals and organizations         China are available online at www.unchina.org/unido.
participate in IPAnet, and the Web site contains over           UNIDO is implementing a recently approved GEF-
200 documents related to business and investment con-        funded UNDP program to improve industrial efficiency
ditions and potential projects as well as links to nation-   in ChinaÕs town and village industrial enterprises.
al and subnational investment promotion agencies.            TVIEs are generally small-scale collective or privately
    Applications and other details regarding MIGA are        owned enterprises. They are significant contributors to
available online at www.miga.org, and IPAnetÕs Web           industrial output and local economies, but they slip
address is www.ipanet.net.                                   through many environmental protection regulatory
                                                             apparatuses and are thus major contributors to overall
United Nations Development Program                           pollution discharge as well. The project, currently
                                                             aimed at small-scale brick, coke, cement, and foundry
   The programs of the United Nations Development            industries, is in its second phase. After identifying and
Program (UNDP) in China are funded via UNDP core             prioritizing the barriers to energy efficiency in the sec-
resources, the GEF, and the MontrŽal Protocol.               tor in phase 1 and phase 2 seeks to initiate a market
Activities focus on sustainable energy development, air      transformation and strengthen regulatory capacities to
and water pollution, natural resource management, and        govern clean development in the sector as it grows.
environmental governance. UNDP activities in China           Equipment procurement begins in 2002. Interested par-
can be monitored via UNDP-ChinaÕs Web site                   ties are encouraged to contact UNIDO and the Ministry
(www.unchina.org/undp/). The site contains descrip-          of Agriculture (the Chinese government implementing
tions of past and current projects, with occasional brief    agency) as soon as possible.



                                                                                      China Export Market Plan 77
  Registration information for involvement in UNIDO        of Japan (JEXIM) merged to form the Japan Bank for
programs, as well as the weekly informational              International Cooperation (JBIC). Previously the OECF
newsletter UNIDOscope, are available online at             was JapanÕs operative institution for extending Japanese
www.unido.org. Reviews of China-specific UNIDO             donations, loans (including a considerable amount of
projects are available at www.unchina.org/unido.           untied loans), and technological cooperation to China.
Unfortunately, prospects for the direct participation of   Under the JBIC, the operations that were previously
U.S. companies in UNIDO projects are uncertain, as the     within the jurisdiction of the OECF remain differentiat-
U.S. no longer directly supports UNIDO.                    ed from those of JEXIM.
                                                               In fiscal year 1999, China was the second largest
Global Environment Facility                                recipient of Japanese overseas development aid, receiv-
                                                           ing $1.22 billion in direct aid and soft loans. A consid-
   The Global Environment Facility (GEF) is a grant        erable amount of those funds were spent on major
and concessional funding source for environmental          infrastructure, such as airports, railways, and sewage
and economic growth projects with global implica-          treatment projects, yet of the 19 projects approved by
tions. Activities focus on climate change, biodiversity,   the OECF itself, 14, or 74 percent, were related to envi-
international waters, and stratospheric ozone. Projects    ronmental improvement, and 13, or 68 percent, were
are generally implemented through UNDP, the United         related to inland development. Unlike many bilateral
Nations Environment Program (UNEP), and the World          aid programs, the Japanese program offers untied loans
Bank; however, GEF is an independent international         for infrastructure development and environmental pro-
institution. GEF financing is intended to cover only       tection, thereby opening the bidding for some JBIC-
the incremental costs of activities with environmental     financed projects in China to non-Japanese contractors.
benefits. Incremental costs are calculated by compar-          However, Japanese domestic pressures to overhaul
ing the costs of environmentally superior operations       its financial aid practices, an increasing perception that
with the costs of similar projects undertaken without      ChinaÕs growing economy warrants a more independent
additional expenditures to benefit the environment.        approach to the countryÕs development financing, and
UNDP manages GEF technical assistance projects in          concerns over Chinese military spending may begin to
China, and the World Bank manages GEF investment           affect the JBICÕs overseas development aid to China
projects.                                                  and its availability to non-Japanese contractors. JapanÕs
   Project development funds (PDF) are also available      plans for future financial aid to China remain unclear.
through GEF for projects in the development phase that     Loan programs are evaluated on a project-to-project
are expected to need partial GEF financing during          basis, and loans are no longer provided in lump sums of
implementation. Three PDF funding levels exist: PDF        five years at a time. It is also now unclear to what
Block A grants, of no more than $25,000, are intended      degree JBIC loans are tied to Japanese contractors. A
for initial pre-feasibility studies; PDF Block B grants,   Foreign Ministry spokesman did tell media sources that
of no more than $350,000, fund specific project            JBIC aid policy is shifting from major infrastruc-
preparatory and feasibility studies; and PDF Block C       ture development to poverty reduction, technical
grants, of no more than $1 million, can be used to fund    cooperation to assist human resource development,
detailed engineering design and complex technical and      and environmental protection. Japanese financing for
financial preparatory work. Matching funds from the        environmental protection may decrease overall.
sponsor are usually required for access to PDF.                The JBICÕs Web address is www.jbic.go.jp. The
   For specific details on eligibility for GEF financing   OECF Web site is no longer available, but information
and documentation on pipeline processes, see the GEF       pertaining to the OECF and its new manifestation is
Web site at www.gefweb.org.                                available via the JBIC site.

Japan Bank for International Cooperation                   Export-Import Bank of the United States
  In October 1999, JapanÕs Overseas Economic                  For an overview of the Ex-ImÕs pertinent programs,
Cooperation Fund (OECF) and the Export-Import Bank         see Chapter 10 or visit the Web site at www.exim.gov.




78 U.S. Department of Commerce, International Trade Administration
Selected References and Web Sites                      Export-Import Bank of the United States:
                                                       www.exim.gov
References
                                                       Global Environment Facility:
Cao Dong and Sun Rongqing. Environmental
                                                       www.gefweb.org
Financing in China: A Review. CRAES, SEPA,
November 2000.
                                                       International Finance Corporation:
                                                       www.ifc.org
Gao Shuting, Ge Chazhong, Yang Jintian, Wang Jinnan,
Li Xiaoning. Environmental Funds in China: Past        Japan Bank for International Cooperation:
Experience and Future Prospects. Beijing: CRAES,       www.jbic.go.jp
Tianjin Industrial Pollution Control Fund Office,
November 2000.                                         Multilateral Investment Guarantee Agency:
                                                       www.miga.org
Stover, Jim, Justin Harris, and Christopher Adams.
Hard Currency Financing for Environmental Projects     United Nations Department of Public Information:
in China: International Market Insight. U.S. and       UN Development Business:
Foreign Commercial Service, August 1999.               www.devbusiness.com

U.S. and Foreign Commercial Service, Beijing.          United Nations Development Program:
Environmental Project Approval and Financing in        www.undp.org
China: A Perspective for US Companies. Beijing:
November 2000.                                         United Nations Development Program, China:
                                                       www.unchina.org/un/undp.
Wang Jinnan, Wu Shunze and Luo Hong. Integrating
Economic Development and Environmental Protection      United Nations Industrial Development Organization:
in China During the 10th Five-Year Plan Period.        www.unido.org
Beijing: CRAES, November 2000.
                                                       U.S. Embassy, Beijing:
Web Sites                                              www.usembassy-china.org.cn

Asian Development Bank:                                World Bank Group:
www.adb.org                                            www.worldbank.org

Asian Development Bank Business Opportunities:         World Bank Group in China:
www.adb.org/business/opportunities/default.asp         www.worldbank.org.cn/English/home.asp

Asian Development Bank Country Assistance Plan:        World Bank Monthly Operational Summary:
www.adb.org/China/default.asp                          www.worldbank.org/html/opr/procure/MOS/contents.html




                                                                              China Export Market Plan 79
                                                   Chapter 10
               Positioning U.S. Exporters in the Market


ChinaÕs environmental market is highly competitive,           to the advantage of exporters in this sector. Generally
somewhat restricted, unwieldy, and not easily under-          speaking, certain sector strengths (such as the French
stood. Accurate data illustrating demand and market size      domination of the water sector) and tied assistance pro-
is scarce, problems are large in scale, and the intricacies   grams constitute advantages for third-country competi-
of how to address problems efficiently are not well           tors. Various benefits associated with local production
understood by the domestic players, making it difficult       account for a large part of local competitor advantage.
for outsiders to determine where their services are need-        Entering the Chinese market requires due diligence
ed and how access can be achieved. As a result, making        and feasibility analyses. Even more important, it
sweeping strategic statements on market entry is unreal-      requires a willingness to take risks and determined per-
istic. Market potential exists for service and technology     severance. This approach of informed risk taking com-
providers and for consultants with the capacity to gain a     bined with a strategy of starting modestly and allowing
deep understanding of needs in specific localities and        natural business growth has been proven in the Chinese
facilitate solutions that are both economically and logis-    market. Many large companies have entered the market
tically feasible.                                             with a reasonable budget and, as a result of engaging the
    Market access for foreign companies is further limit-     government at the wrong level (usually too high), posi-
ed in that market demand remains largely aid driven. For      tioning a high-cost expatriate, or hiring an inexperienced
U.S. companies, this poses further complications. The         Chinese national, have failed and pulled out. Personnel
severe shortage of bilateral assistance from the U.S.         issues also account for the failure of many overseas busi-
eliminates possibilities for tied financial aid and leaves    nesses in China.
only the resources of multilateral agencies and the Trade        The formula for success could in fact be quite simple.
and Development Agency (TDA). As indicated through-           A midlevel Western manager with a proven business
out this document, regulatory pressures, as well as the       sense and a desire to prove himself or herself is often the
aims of increasing efficiency and positive corporate          best solution for in-country management in the startup
image, are increasingly contributing to market demand,        phase. Contrary to conventional wisdom, overseas
but they do remain (to varying degrees) limited instiga-      Chinese and experienced managers from other Asian
tors. At the same time, the bulk of domestically-sourced      countries (even Hong Kong and Taiwan) are rarely a bet-
spending on environmental protection is aimed at              ter option. Although they may know the language, cul-
domestic suppliers. This, too, is changing (albeit on a       tural differences between Hong Kong and the mainland
small scale), as Chinese buyers realize the long-term         and between Taiwan and the mainland can be as signifi-
benefits of spending more money up front on better            cant as those between the U.S. and the mainland, and
equipment as opposed to covering the maintenance costs        while Western-looking American managers are allotted a
needed to keep mediocre, locally-produced equipment           margin of error by Chinese business partners, non-
up and running. Nonetheless, price remains a strong           Chinese Asians and overseas Chinese who purport to
determinant factor for many purchasers.                       have a flawless cultural sense are not. Chinese nationals
    U.S. exporters also must consider in which sectors        who were trained in the U.S. and lived abroad for
they can be most competitive vis-ˆ-vis the strengths of       extended periods fall into the same category, while
third-country and local competitors. U.S. versus third-       Chinese nationals who were trained in American institu-
country competitor advantages are discussed in some           tions of higher education but have not worked in the
detail in each of the sector analysis chapters; however, it   U.S. lack the necessary business experience. While
should be restated that, although U.S. technology in a        Western-educated Chinese constitute the best of the
number of sectors is considered superior or of high cal-      overseas hiring options, care should be taken to train and
iber, prices may remain prohibitive. One sector in which      immerse them fully in corporate culture, and when trans-
the United States does excel is monitoring equipment,         ferred to China they should remain under the manage-
and the inabilities of local producers coupled with           ment of a midlevel corporate manager until they are
increasing mandates for stricter monitoring may play out      fully trained. In sum, the best option is typically a for-


80 U.S. Department of Commerce, International Trade Administration
eign, mid-level team player who knows the business            governmental pressures to improve the situation are
well and hungers to prove his or her capabilities. High-      causing even faster growth of market size. While these
level corporate executives demanding large salaries and       assessments are theoretically true, it is important to con-
first-class living accommodations are not ideal. Startup      sider them in the context of market potential as opposed
managers need a couple of yearsÕ time to fully enter the      to market demand. A number of factors continue to pre-
market before achieving financial viability.                  vent the marketÕs potential from developing into
   To assist in this process, or if local representation is   demand. Several of these have been alluded to in other
required, a variety of private consulting and law firms       sections of this document; however, their importance
are available for consultation, and a growing number of       cannot be overstated.
environmentally-specialized firms exist. If a long-term       Market-Based Incentives. Fees and tariffs levied on
entry plan is not feasible for a U.S. company, then a         services and resources in China still do not reflect their
local representative with a proven track record, which        actual costs or values, making it difficult for service and
may be a Chinese or a Western company, may be                 resource providers to generate profits. Authorities have
engaged to market on behalf of the U.S. firm.                 started to implement fees based on the costs of con-
Alternatively, a general representative office serving the    struction, operation, and maintenance of environmental
interests of environmental industries toward a particular     infrastructure facilities and to establish new policies
state business or sector may be established to promote        encouraging private investment. Yet, in many cases,
the interests of its constituents in-country. Again, the      these efforts do not constitute a real market approach
management of such an office should follow a pattern          and remain inefficient.
similar to that described above. In all cases, broad-
based consultations with the U.S. Embassy, the                Enforcement of Legislation. ChinaÕs environmental
American Chamber of CommerceÕs environment,                   legislation has become quite complex and continues to
health, and safety forum, and other businesses should be      grow more comprehensive. However, the ability to
undertaken to achieve the broadest possible perspective       enforce this legislation and affect environmental protec-
before decisions are made.                                    tion in the localities varies considerably, primarily as a
   A number of countries offer bilateral aid and assis-       result of conflicts of interest, inadequate capacity and
tance programs to guide environmental protection devel-       financial resources, and difficulties in locally interpret-
opment while generating investment opportunities for          ing and implementing national decrees.
their nationÕs industries. Although the United States         Conflicts of Interest. Several conflicts of interest
offers very little along these lines, monitoring other pro-   stymie environmental protection in China today. The
grams may help in pinpointing market opportunities that       primary conflict is between environmental protection
are tangentially related. (See Box 12 for further discus-     and economic development. Officials and business
sion of U.S.-China bilateral assistance.)                     leaders believe that environmental protection costs limit
   The U.S. and Foreign Commercial Service in China           industrial profitability and development plans. A similar
provides environmentally specific market analysis serv-       conflict of interest exists between various ministries and
ices, works to bring potential Chinese and U.S. partners      other administrative bodies within the central govern-
together, and maintains an informative Web site               ment, in which some of the more powerful ministries
(www.usembassy-china.org.cn/english/commercial/               oriented toward economic and industry development
index.html) that contains links to a number of periodical     trump the authority of SEPA in the overall implementa-
briefs, resources, and statistics and to an introductory      tion of development plans.
pamphlet guide to the Chinese market. The China                  A third conflict of interest exists in the administrative
Country Commercial Guide is available online at               structure that governs the local EPBs. EPBs receive
www.usatrade.gov, and further useful information can be       their regulatory directives from SEPA at the national
found online at www.buyusa.com.                               level. SEPA has little means to enforce the implementa-
                                                              tion of those directives. Meanwhile, local government
                                                              administrations control the budget, personnel, and other
Monitoring the Market                                         administrative details of the EPBs, giving them a vest-
                                                              ed interest in following the policy objectives of the local
Market Potential Versus Market Demand                         government as opposed to those of SEPA. Thus, if
   Environmental conditions in China often lead               national environmental initiatives inhibit local govern-
investors to believe that opportunities in the environ-       ment initiatives, the local government has more lever-
mental market are manifold and that increased legal and       age to impose its preferences.



                                                                                        China Export Market Plan 81
   Fourth, and most meaningful in terms of commercial           The more underdeveloped regions of the country suf-
interests, is the conflict within regulatory institutions,   fer some of the most severe environmental degradation.
which usually have a ÒconsultingÓ institute. Most EPBs       Because production capacity, municipal and township
are supported by a research institute that acts as both      infrastructure, and awareness regarding environmental
inspector and consultant. Because of this, the market for    protection all remain underdeveloped, degradation con-
environmental services and technologies is distorted by      tinues. Environmental needs in these areas are often
the local monopolies of regulatory institutions. Where       basic but overwhelming in terms of scale. Additionally,
monopolies are seemingly neutralized, institutional cor-     these are often the areas that are most hard-pressed to
ruption often fills the void.                                finance their environmental protection.
                                                                More developed regions have more financial
National Decrees and Local Implementation. There is
                                                             resources to invest in environmental protection. As a
an old adage in China, ÒHere, where the heavens are
                                                             result of relatively rapid development, a higher profile,
high and the emperor is far away.Ó That still rings true
                                                             and a relatively high degree of public awareness and
today. The EPB structure discussed above is only one
                                                             pressure, they have managed to build better environ-
of a number of issues that illustrate this. The ability to
                                                             mental protection capacities in recent years. These
monitor local compliance with national standards
                                                             areas are often more attractive for foreign investors and
effectively depends to a great degree on the local gov-
                                                             are able to sustain stronger environmental protection
ernmentÕs interest in complying. Similarly, the national
                                                             measures. As a result, ChinaÕs gaps increase.
government has trouble implementing local-level
                                                                In researching the market and considering market-
price, fee, and tax increases aimed at improving mar-
                                                             entry strategies, technology and service providers need
ket-based incentives. Governments in some localities
                                                             to consider where their strengths most suitably fit local
are apparently concerned that such increases affect
                                                             needs. An obvious initial conclusion could be that the
industrial productivity and development and could stir
                                                             more developed and wealthier regions offer the best
social unrest.
                                                             market opportunities. However, it should be remem-
   Because of these factors, a regulation-driven market      bered that, as pressure increases upon local govern-
in China has yet to emerge, and the potential market         ments to improve fundamental environmental quality,
remains more promising than actual market demand. In         they look to experienced and capable technology and
a number of instances, however, signs already exist that     service providers for efficient solutions needed to make
some of these factors are changing, particularly in the      improvements affordable. Technology and service
more progressive coastal areas. Optimistic speculation       providers with innovative products and management
indicates that future changes will generally err toward      techniques, who can profitably exploit large market
the side of improved regulation, increased market            bases with relatively inexpensive solutions, find an
demand, and increased liberalism. The timely establish-      increasingly warm market climate. In such cases, sell-
ment of a market presence is increasingly important.         ing in quantity and offering money-saving or
Nonetheless, it is critical to consider all factors and to   revenue-generating management techniques is the key
assess the degree to which and the speed with which          to profitability.
national policies are carried out within a given locality.
                                                             Policies and Priorities
Regional Specificity
                                                                China clearly expounds its environmental develop-
   Because the factors addressed above vary consider-        ment priorities through policy initiatives such as its Five
ably across the country and from locality to locality, it    Year Plans, Agenda 21, the Trans-century Green
is critical that potential investors think not about the     Engineering Program, and other programs intended to
market as a whole but about the market climate of the        decree or urge action for environmental investment.
particular region or locality in which they will be          These policy drivers are good indicators regarding cen-
investing. Perhaps the most important aspect of region-      tral priorities and should be consulted by foreign
al specificity is overall development and the ability to     investors while investigating the market; however, they
finance environmental protection. As previously indi-        should not be viewed as the only or the ideal path to
cated, development in China has been skewed over             market access.
the years, resulting in a tremendous gap. This gap              Foreign exporters should remember that these cen-
continues to play out in the environmental sphere in         tral priority plans are just that: centralized policy
two ways.                                                    regarding widespread and intricate local problems. As



82 U.S. Department of Commerce, International Trade Administration
indicated earlier in this chapter, central government          consultants who can personally visit locales and gather
commitment does not presuppose local government                firsthand insight into regional needs. By becoming well
commitment, and any government commitment                      acquainted with the intricacies of issues within the
does not necessarily indicate commercial viability.            jurisdictions of particular EPBs, such consultants can
Government assurances or state priorities are not a sat-       offer insights to the EPBs regarding efficient abate-
isfactory substitute for standard due diligence.               ment schemes and can offer market-entry consulting
Furthermore, targeting the correct level of government         for technology and service providers. (See the section
decision-makers for information or permits is critical in      on monitoring and consulting for market entry later in
order to reduce bureaucratic red tape and the risk of          this chapter.)
investment losses.                                                Many EPBs maintain Web sites (of varying quality
   The Tenth Five Year Plan refers to the central eco-         and usefulness) and have departments specifically ori-
nomic development plan for the years 2001Ð2006 and             ented to working with international contacts. The
in part refers directly to the environmental protection        China Contacts list in Appendix B contains updated
agenda during that period. Agenda 21 and the Trans-            contact information for EPBs. Where possible, the
century Green Engineering Program are ongoing envi-            names and contact information of those members of
ronmental development initiatives under the auspices of        each EPB who focus specifically on business affairs
different and competing government ministries. The             dealing with international parties and who can speak
structures of these as well as other policies and priori-      English have been provided.
ties are outlined in Chapter 3, and contact information
provided in the China Contacts list in Appendix B indi-        Other Government Agencies
cates channels for monitoring the most up-to-date
developments in regard to these initiatives.                      EPBs represent the first line of inquiry regarding
   As previously noted, laws and enforcement trends            environmental conditions and needs in an area.
are also key indicators that should be considered by           Agencies such as local economic and trade bureaus,
investors.                                                     planning bureaus, and bureaus of foreign trade and eco-
                                                               nomic cooperation are often more knowledgeable and
Environmental Protection Bureaus                               focused on servicing business needs. In many cases,
                                                               local-level branches of these agencies outside the more
   It is often stated that the best way to learn about local   developed regions may be unable to respond to interna-
environmental needs is to contact the local                    tional inquiries. In such cases, the next level (possibly
Environmental Protection Bureaus (EPBs). EPBs are a            the provincial level) of government must be consulted.
primary inroad for assessing environmental stresses and        Unless an extremely large investment is being consid-
thereby understanding protection and abatement                 ered, contact with national-level agencies is unneces-
demands. In theory, EPBs should have up-to-date statis-        sary and often inefficient.
tics and indicators categorized by industrial sector on           For an overview of the various roles played by indi-
hand and should be knowledgeable about the specific            vidual government agencies in the project cycle, see the
needs of polluting industries under their jurisdiction.        section on market-entry procedures later in this chapter,
   However, it is often the case that EPBs themselves,         as well as Chapter 3.
particularly those in the more backward and environ-
mentally stressed regions, are as much in the dark about       Special Zones and Industrial Parks
how to address local environmental problems effective-
ly and efficiently as everyone else in China. Simply              Special economic zones and industrial parks provide
calling various EPBs and inquiring about local needs           another channel for gaining insight into environmental
will yield few specifics of interest. The reply will often     protection needs. Administrators within the zones and
constitute an indication that all sectors are lacking and      parks may be interested in addressing the environmen-
that there is a need to address all of the most basic pol-     tal needs of the zone as a whole (for example, through
lutants. (Additionally, the EPBs often indicate that only      a common waste management facility), and many
affordable, even cheap, solutions are viable, as finances      administrators have insights into the particular needs of
are tight and the scale of the issues quite large.)            the entities operating under their jurisdiction. (A list
   This lack of clarity on the part of the EPBs opens yet      containing contact information for most Chinese devel-
another market opportunity to highly motivated and             opment zones has been provided at the end of this doc-
entrepreneurial environmental market analysts and              ument as Appendix F.)



                                                                                       China Export Market Plan 83
 Box 10.     ChinaÕs Bonded Zones
 Business operations in ChinaÕs 16 bonded zones (see the map in Appendix A) operate under the most liberalized albeit least
 clearly delineated regulations in the country. Originally conceptualized as extraterritorial export reprocessing zones where for-
 eign manufacturers could establish operations and employ Chinese labor without being subject to various taxes, the zones have
 developed into leniently regulated trading hubs facilitating various operations, some of unclear legality. Extraterritoriality
 allows foreign investors to avoid certain regulations, quotas, foreign exchange issues, and taxes that hinder foreign investors
 operating elsewhere, and trends indicate that leniency in the zones is increasing.
    As a result of regulatory leniency with regard to national policy enforcement, foreign investors operating in the zones can
 increasingly circumvent restrictions to facilitate their commercial operations in China. Among various creative arrangements,
 companies inside bonded zones have been established to administer sales and marketing outside of the zones (which is not
 intended under the preferential tax and incentive policies available only to operators within the zones), retailers have arranged
 to provide after-sales services (a sector currently reserved for Chinese operators and JVs), and foreign investors have even
 become involved in domestic trading. However, each bonded zone operates under its own set of rules, and what is possible in
 one zone may not be possible in another. Investors considering operating out of a bonded zone should fully understand the intri-
 cacies of each zone before determining which best suits their needs.
    Service providers doing laboratory work for environmental analysis might consider establishing operations in a bonded zone.
 Customs and fixed asset investment taxes, which are normally levied on facilities and equipment brought into the PRC when
 establishing such an operation, are waived inside the zone. The service provider could then partner with a Chinese laboratory
 holding a Class A license (required to approve and validate samples tested) and offer services to clients throughout the main-
 land. A number of laboratories have already established such arrangements and are operating successfully.
    The potential for foreign environmental industries to exploit the possibilities afforded by the bonded zones is broad; how-
 ever, pushing the outer limits of the law runs risks. With the assistance of competent lawyers experienced in the operations of
 bonded zones, foreign investors can get quite creative and remain safely within the ambiguous bounds of the law. Those who
 wish to push those bounds should seek reliable counsel in determining the benefits and potential costs of doing so. As liberal-
 izations associated with WTO entry increase market accessibility, the benefits of operating in bonded zones are dissipating, as
 the regulatory leniency currently governing the zones is reined in.



   Additionally, there are parks specializing in environ-           Local Presence. Foreign investors hoping to provide
mental industries (such as the Yixing Environmental                 equipment, component parts, consulting, contracting, or
Industry Park), acid rain and SO2 emissions control                 engineering services should consider establishing a
zones, and priority regions, rivers, and lakes and ÒkeyÓ            presence in China. Establishing a local presence, either
cities, all of which can offer insights into what technol-          through a JV with a Chinese company or through a
ogy and services are needed, and where.                             WFOE offers a number of advantages:
                                                                    q   Due to high import tariffs and reduced labor and
Market Entry                                                            raw material costs in-country, local foreign-invested
                                                                        operations can provide goods at a lower cost than
Market-Entry Vehicles                                                   competitors that are importing foreign-produced
                                                                        goods into China.
   There are essentially three general methods by which             q   Local foreign-invested operations can take advan-
to enter the Chinese market, each with its own positive                 tage of the above-mentioned points and benefit
and negative aspects. Potential vendors must assess                     from the local perception that American-made envi-
which market-entry strategy is best suited to their needs               ronmental protection products (including those
based on what services or technologies they provide,                    produced in China under the supervision of a
who their potential customers are, their financial con-                 Western company) are of a consistently higher cal-
straints, and their various strengths and weaknesses.                   iber than wholly Chinese-produced goods.
Investors should also be certain to understand the inher-           q   Companies with a local presence can accept pay-
ent benefits and complications of each market-entry                     ment in renminbi, important because foreign curren-
method. Choosing one over another often constitutes                     cy is tightly controlled and domestic companies and
exchanging one set of complications for another (see                    government organizations are often hard-pressed to
Table 10.1).                                                            pay in U.S. dollars.



84 U.S. Department of Commerce, International Trade Administration
q   A local presence facilitates the development of             are bringing technologically-advanced production
    personal relationship networks, which are vital             methods or products into the country. Priorities and
    for successful business operations in China. Ideal          policies are constantly changing, but it remains
    local partners have a relatively strong, estab-             difficult to predict what might be expected of for-
    lished network.                                             eign-invested enterprises operating in various parts
q   ChinaÕs regulatory environment is lacking in trans-         of the country.
    parency. Although this is changing since WTO
    entry, a reliable and capable local partner well          Cross-Border Entry. Some investors considering the
    versed in the daily procedures of Chinese business        establishment of a local presence may be able to
    is invaluable.                                            achieve their goals via cross-border entry. Others may
q   Chinese customs procedures are notoriously opaque         want to enter the market initially through cross-border
    and troublesome. Local producers that can minimize        entry with the intention of establishing a local presence
    reliance on imported goods are able to reduce those       over time.
    complications.                                               Technology and equipment providers can export
                                                              directly to China, but they face high import tariffs, mak-
   It is to be noted that, in addition to the above-men-      ing it difficult to offer competitive pricing. Additionally,
tioned advantages, establishing a local presence may          current industrial reform policies are aimed at develop-
generate difficulties:                                        ing domestic production capacities, placing exporters at
q   Locating and partnering with competent, trustwor-         a disadvantage. Such an approach does, however, open
    thy, and commercially viable Chinese counterparts         exporters up to certain preferential treatment by the Ex-
    can be difficult. Protecting intellectual property is a   Im (see the section in this chapter that discusses U.S.
    very real challenge, financial disclosure regulations     government programs facilitating environmental
    for enterprises are minimal, bookkeeping is often         exports to China, on page 90) and eliminates the neces-
    creative, and potential partners are known to present     sity of establishing a corporate body in the country.
    themselves deceptively.                                   Nonetheless, a local representative office, local partner,
q   Investors have reported complications as a result of      or hired representative remains necessary to maintain a
    conflicting interests between JV partners. Chinese        market presence. For those uninterested in establishing
    counterparts have sometimes been described as unre-       an office or partnership in China, an increasing number
    liable in the long term and competitors in the short      of market analysts and representatives are available.
    term. Furthermore, due to financial pressures, the        The well-established players in this field have a strong
    local partner often views the overseas partner, not       understanding of the China business climate, the ins and
    the success of the project, as the source of income.      outs of day-to-day business, and pre-established rela-
q   Drafting the JV contract can be a trying experience,      tionship networks.
    yet the frustrations may pale in comparison with the         An option that is increasingly being considered by
    difficulties involved in seeing that the contract is      overseas investors is the establishment of a base in one
    honored in its entirety.                                  of the coastal bonded zones in China. These areas are
q   The opaque legal system previously discussed can          designed for importation of parts for assembly and re-
    also create difficulties for foreign JV partners. The     export without the encumbrance of duties and taxes.
    lack of a rule of law makes contract disputes and         The benefits provided by this mechanism are that while
    other partner-related affairs difficult to manage,        a physical presence is established in China, in effect all
    often leaving the foreign investor at a disadvantage.     activities are technically Òcross-border.Ó If the legal
q   Establishing a WFOE as opposed to a JV can allevi-        mechanisms for such a presence are properly under-
    ate some of the above issues, and with regulations        stood (with the assistance of an experienced law firm)
    easing, the establishment of a WFOE is becoming           and properly utilized, significant operational flexibility
    an increasingly popular option. However, WFOEs            and access can be achieved. (See Box 10.)
    must make up for the relationship network gap that           Chinese procurement agencies work to bring buyers
    is not filled by a Chinese partner, making the            and suppliers together. Traditionally these agencies,
    recruiting of very capable and experienced local          particularly those carrying out government procure-
    players requisite if the foreign players lack their       ment, have targeted domestic producers or unscrupu-
    own network.                                              lous agents of foreign companies (a strategy that may
q   In the past, foreign-invested companies have been         create difficulties for U.S. companies with regard to the
    urged to focus on producing for export unless they        Corrupt Foreign Practices Act). Although this entry



                                                                                        China Export Market Plan 85
method is still somewhat tight, insiders have noted that,            provider must establish either a permanent local
as a slowly increasing number of domestic contracts are              presence or a contractual JV. Contractual JVs may be
being opened to unrestricted bidding, opportunities are              established for a prescribed period of time or may be
increasing for foreign producers offering unique prod-               project specific.
ucts at competitive prices.                                             Foreign investors might also consider the direct
   Foreign providers are also allowed to offer consult-              needs of multinational and other large foreign enter-
ing services via cross-border delivery. All other serv-              prises operating in China. Such enterprises generally
ice providers must operate in China or through a local               seek to outsource procedures that are not considered
partner. Any foreign service provider requiring official             profit generating; however, they often have difficulty
approval at any stage of project execution needs a local             finding local service providers that can manage these
partner. Some areas of activity, such as undertaking                 procedures in accordance with their relatively strict
EIAs or providing engineering services, are severely                 internal standards.
restricted and require collaboration with a properly
licensed local agency. To carry out baseline studies,                Multilateral and Untied Bilateral Projects. Entering
EIAs, sample analysis, or other services in which final              the Chinese market via multilaterally funded and
reports or designs require official approval, a foreign              untied bilaterally funded projects remains one of the

Table 10.1    Advantages and Disadvantages of Various Market-Entry Vehicles

Vehicle               Advantages                                                 Disadvantages

Local production      Can accept payment in renminbi.                            Requires investment.
                      Can (possibly) compete better on cost.                     Could require higher operating costs.
                      Proximity to end user allows faster delivery time          Presents potential dangers in technology transfer.
                      and other such benefits.
                      Offers many options for manufacturing.

JV                    Partner may provide some benefits.                         Loss of technology is possible.
                      May make it easier to get investment approval.             Must run business with partner.
                                                                                 Involves more difficult exit strategy.

WFOE                  Lack of partner allows a free hand in the market.          No partner is available for assistance.

Direct imports        Technology is easier to protect.                           Cannot accept payment in renminbi.
                      Costs lower all around.                                    May face import restrictions.
                      Poses less risk and exit strategy is easier.               Products will likely cost more.

Representative        Offers cost-effective market entry.                        Unlike other direct import options, involves
office                Can understand market better before setting                operating costs for China presence.
                      up production.

Agents/distributor    Can be very useful for broad footprint of end users.       Poses dangers of losing control of marketing.
                      Can provide service.                                       Does not cover all products.

Franchise             In-country presence is not needed.                         Poses risk of technology theft.
                                                                                 Monitoring and controlling are very difficult.
                                                                                 Little recourse is available in disputes.

Direct sales          In-country presence is not needed.                         Presents operational difficulties.
(no distributor or                                                               Covers only products with small end user
representative)                                                                  footprint.

Source: U.S. Department of Commerce, International Trade Administration, Partnering in ChinaÕs Environmental Sector (Washington, DC:
U.S. Department of Commerce, 2001). Available online at www.ita.doc.gov/media/publications.html.




86 U.S. Department of Commerce, International Trade Administration
most secure methods. These projects have available                  A BOT project differs from a PPP project in that,
hard currency, undergo lengthy feasibility assess-               although it does constitute a relationship between the
ments, and are subject to the internal policies and stan-        client (the public entity) and the supplier (the private
dards of the implementing agency. Although bidding               entity), it is not a partnership in which the players
for some Chinese government-funded projects is                   cooperatively invest in and operate a facility. Rather,
opening up to foreign contractors, multilateral and              the building and operation of a facility in a BOT proj-
untied bilateral projects have the further advantage of          ect is 100 percent funded and owned by the private
employing reasonably transparent and competitive                 investor prior to its transfer to the public entity at a pre-
bidding procedures.                                              determined time. In contrast, a PPP project is a part-
   Bidding for multilateral projects, however, is highly         nership in which both the public and private entities
competitive and remains a difficult task for inexperi-           make equity investments in a facility, each maintaining
enced vendors. Potential bidders that have no experi-            a percentage of ownership. It is possible for a BOT
ence in tendering a multilateral project are best advised        facility to be included as part of a larger PPP project in
to work cooperatively with one that does. It is also nec-        which part of the private entityÕs agreement is to build
essary to monitor the development of projects from the           a facility that is to be transferred at a pre-determined
earliest possible stage. Most competitors are usually            time in the future.
quite well positioned for the bidding process long                  The current number of BOT and PPP projects in
before the call for bids is issued.                              China amounts to little more than a handful.
   The barriers to untied bilateral projects are similar to
those mentioned above, but they are compounded by                BOT Projects in China. Currently, BOT projects in
the scarcity of such projects. Essentially, the only con-        China are limited to the building, operation, and transfer
sistent untied bilateral aid donor to China that has sig-        of facilities whose specifications are defined by govern-
nificant operations in this sector is JapanÕs JBIC               ment planners prior to contracting the foreign investors.
(formerly the OECF; see Chapter 9). However, the                 This approach limits the capacity of the contractor to
countryÕs overall aid to China may yet decrease, as              develop a comprehensive service infrastructure and fails
pressure in Japan to review its China aid program has            to take advantage of foreign expertise and know-how,
been mounting.                                                   thus affecting overall efficiency. Concession agree-
   Most other bilateral aid programs of significance are         ments, in which a firm is contracted to develop a com-
tied to contractors within the country from which the            prehensive system to service a given geographical area
aid stems. Tied bilateral aid has in fact helped many            in its entirety, are preferred by foreign investors because
companies establish a very strong presence in China.             such agreements afford them the flexibility to develop
U.S. companies complain they are at a decided disad-             an efficient system suited to the greater needs of the
vantage resulting from a lack of tied bilateral aid from         locality. Currently, contractors are rarely consulted in the
the U.S. government (see Box 12).                                planning of such projects, and product distribution, pric-
                                                                 ing, and billing remain under the control of the local
                                                                 government. Industry insiders have indicated that local
Public Private Partnerships and Build-Operate-
                                                                 governments are beginning to recognize the decreased
Transfer Projects
                                                                 efficiency resulting from these constraints, and they
   Several large foreign companies have entered the              appear optimistic regarding the potential for more com-
Chinese environmental infrastructure market via models           prehensive BOT agreements in the future.
known as public private partnerships (PPPs) and build-              Many of the foreign BOT operations in China have
operate-transfer (BOT) projects. Currently, most of these        been funded through official aid programs, helping the
projects take the form of BOT and are water-management           involved firms to develop a strong market presence.
oriented. Although PPPs are less commonly seen in                Tied bilateral aid has been a significant contributor, but
China, the possibilities for them also exist, and at least one   the ADB is also a strong proponent of the BOT model.
clear example of a successfully initiated PPP is known.          The tied bilateral aid option is not available to U.S.
Official press coverage of infrastructure projects being         companies; however, the potential markets are far from
developed through these models has been positive and             saturated in China. Companies seeking to enter them
outspoken, and insiders have indicated that the official         are well advised to establish a market presence sooner
sphere looks on them with increasing favor. As other             rather than later.
infrastructure markets open up in China, these models,              A number of domestically-generated BOTs were
while challenging to implement, may grow in importance.          announced in the first half of 2001, indicating further



                                                                                           China Export Market Plan 87
acceptance of the model by both Chinese authorities                   compatibility of PPP partners and their goals is critical
and Chinese enterprises. Several proposed projects are                to success.
quite large in scale; however, it is not at all clear what
opportunities they might hold for foreign vendors.                    Potential Complications and Requisite Precautions
PPPs in China. PPPs are less commonly seen in China
                                                                          Whether foreign investors choose to enter the market
than BOTs. They have considerable potential to become
                                                                      via JV, WFOE, cross-border entry, or any of the various
important. In one instance of a true PPP in China, a sub-
                                                                      other methods, a number of potential complications
sidiary of a large multinational entered into what is
                                                                      exist. China remains a country with an underdeveloped
essentially a JV with a state-owned municipal facility.
                                                                      rule of law, and investors have been victims of robbery,
The public entity contributed its previous facility for a
                                                                      embezzlement, IPR infractions, and similar issues with
lesser stake in the company, while the multinational
                                                                      little or no recourse to the law. Nearly all entry methods
subsidiary agreed to build, operate, and transfer addi-
                                                                      require some degree of partnering or interaction with
tional facilities, establish sound management, and train
                                                                      local entities. Each method should be carefully screened
local hires. Contract negotiations included agreements
                                                                      and well understood.
with the local government regarding pricing structures
                                                                          Below is a list of some of the most commonly
that the private entity deemed sufficient. The public
                                                                      encountered complications to watch for. It is not, how-
entity viewed the training (including training modules
                                                                      ever, exhaustive, and investors considering entering the
based in the U.S.) and positioning of locally hired high-
                                                                      Chinese market are strongly urged to consult experts in
level managers as beneficial to the socioeconomic
                                                                      the field.
development of the locality.
   The managing director of the private entity conceded               q   Partnering in China can be confusing. Expectations
that this operation has been fortunate in that the public                 must be very clearly communicated and understood.
sector partner is progressively oriented and willing to                   The most common issue that arises is that overseas
compromise. Additionally, the project is located in a rel-                investors do not understand their partners well and
atively affluent region, thereby facilitating pricing                     do not nurture a trusting relationship over time. The
structures that are sustainable. The director also                        agreements reached need to be simply stated and
explained that such a project would not have been pos-                    put in writing regardless of the goodwill that may
sible at this time without funding from the parent multi-                 exist in early negotiations. Seeking out progressive-
national. The project is expected, however, to function                   ly-oriented partners that have worked with foreign
as an influential pilot program that will attract other                   investors before or that have worked overseas
local government leaders in search of similar arrange-                    is ideal.
ments, and it has afforded the foreign investor a market              q   Delinquent payment for goods and services is a
presence without the assistance of any outside funding.                   serious problem faced by both exporters without an
As is the case in any partnering scheme in China, the                     in-country presence and locally operating firms. It is


 Box 11. Protecting Intellectual Property Rights in China
 Intellectual property rights violations are a fact of life in the Chinese marketplace. Foreign investors of all types and sizes,
 from single-person operations to multinational conglomerates, are subject to the possibility of IPR infringement.
 Unfortunately, breakdowns in the rule of law, the pervasiveness of the issue, and the ingenuity of the perpetrators make it dif-
 ficult for companies to protect themselves completely. Some enterprises accept IPR infringements as a cost of doing business
 in China; however, those that cannot afford that cost should seriously consider whether potential successes in the Chinese mar-
 ket justify the risks.
     Environmental equipment providers producing technologically unsophisticated yet innovative equipment must be cautious.
 Enterprising Chinese can easily reverse-engineer such products and flood the market with cheap copies. One market consultant
 with years of experience in the China marketplace insists that the best method to prevent such a scenario is to network an aware-
 ness of a particular product heavily, making clear to end users, local officials, and other producers its origin and rightful owner,
 and then to establish the necessary relationships to ensure its protection. Other companies invest large sums in contracting firms
 to manage IPR issues, some becoming deeply involved in local politics. Ongoing efforts to dismantle vast production and dis-
 tribution networks of pirated goods, upon which entire local economies are based, continue in China today and will likely con-
 tinue for some time.




88 U.S. Department of Commerce, International Trade Administration
    advisable to seek out creative means by which to            q   For industrial pollution control projects, local EPBs
    ensure delivery of payment.                                     are the primary contact point (generally via a well-
q   Regulations governing business practices in-country             established consultant or market representative).
    can be restrictive and can vary from place to place.            Despite the lack of overall clarity alluded to earlier,
    As an example, companies operating in the Suzhou                EPBs are well situated to report on the state of
    Industrial Zone are required to hire only local                 affairs for individual point sources of pollution
    Suzhou residents unless the employee is a universi-             within their jurisdictions, and interaction with them
    ty graduate. Some firms operating in the zone have              is almost always requisite in one manner or another.
    expressed dissatisfaction with the restricted labor             SEPA is not involved in the implementation of such
    pool while competitors operating in a nearby zone               upgrade projects; however, national level approval
    are not hindered by such restrictions. Investors                from SEPA, SETC and SDPC is needed if overall
    establishing operations in-country are advised to               expenditure exceeds a certain amount. The dollar
    understand not only the intricacies of local policies           level at which national-level authorization is needed
    where they will invest but the likelihood that those            varies among provinces and municipalities.
    policies will remain consistent in the future.              q   For municipal water, wastewater, and solid waste
q   Intellectual property rights are constantly infringed           management projects, the Ministry of Construction
    upon in China, resulting from a weak rule of law,               and local construction bureaus are the primary con-
    enforcement difficulties, and a local failure to                tact points. The ministry may be useful in directing
    understand the importance of personal property                  investors to local construction bureaus, through
    rights as they apply to intellectual property. This             which project implementation is conducted. The
    problem continues to frustrate even the most sea-               Ministry of Construction should also be consulted
    soned investors in China. Those without creative                as project plans materialize to verify that all nation-
    means to protect themselves are advised to consider             al requirements are met throughout implementation.
    the costs of potential IPR infringements seriously          q   For facilitation of partnerships with equipment pro-
    and to determine whether the benefits of market                 ducers, investors should seek advice from private
    entry justify the risk. (See Box 11 on page 88.)                consulting firms, the U.S. and Foreign Commercial
q   Corruption in China is an unavoidable fact. Many                Service in Beijing, and EPBs at various levels.
    investors have encountered situations in which              q   For facilitation of the sale of equipment, whether it
    progress cannot be made without delivery of Ògifts,Ó            consists of cross-border sales or sales of domestical-
    Òfavors,Ó or expensive dinners. Some operations                 ly produced JV or WFOE equipment, providers
    have been held up due to the absence of Òsuitable               should proactively monitor the interactions of
    transportation,Ó such as four-wheel-drive vehicles or           potential buyers with the Ministry of Finance, vari-
    new sedans. Few investors in China can honestly                 ous-level development and planning commissions,
    claim never to have encountered one type of corrup-             and various-level economic and trade commissions.
    tion or another. Some try to fight or avoid it, while           Projects that are preparing to procure equipment go
    others accept varying degrees of it as a cost of                through a series of approvals with each of these
    doing business.                                                 government bodies, and may apply for financing,
                                                                    before publicly announcing a call for bids. In reali-
                                                                    ty, however, arrangements for procurement are like-
Market-Entry Procedures                                             ly to be firm before the call for bids is made. The
                                                                    best way to secure a contract is to interact coopera-
   Contracting in the Chinese market is best facilitated            tively with project facilitators as they move through
through a Òbottom-upÓ approach, meaning that U.S.                   the bureaucratic processes and establish a solid
investors and suppliers should establish preliminary con-           working relationship. Those equipment providers
tact with local purchasers, partners, or government bodies          lacking the capacity to do this should hire a consult-
as opposed to national-level ministries. Provincial- or             ing firm or market representative to do it for them.
municipal-level government offices directly or indirectly
involved in potential projects are ideal places to begin. If    The Approval Process
possibilities for a project materialize, such partners are
instrumental in facilitating various permitting processes          The approval process for environmental and infra-
and obtaining necessary authorization; foreign investors        structure projects in China is confusing and relatively
should take advantage of local partnersÕ capacities to do so.   opaque. All projects require approval at some level



                                                                                          China Export Market Plan 89
(state, provincial, or municipal) by SDPC, SETC or          consult the U.S. EmbassyÕs Country Commercial Guide
MOFTEC, as well as EIA approvals from SEPA. The             available online at www.usatrade.gov.
required administrative level of approval is based upon        The following three documents published by the
the investment size of the project:                         General Customs Administration of the PRC provide
q   Investment of less than RMB 30 million ($3.6 mil-       comprehensive information on Chinese customs
    lion) requires approval at the municipal level.         regulations:
q   Investment of RMB 30 million to RMB 200 million         1. The Practical Handbook for Custom Clearance
    ($24.1 million) requires approval at the provincial        (March 2002; price: RMB 240; includes CD;
    level.                                                     Chinese only)
q   Investment of over RMB 200 million requires             2. Customs Import and Export Tariff of the PeopleÕs
    approval by SDPC or SETC and the State Council.            Republic of China (December 2001; price: RMB
   In some cases, coastal special economic zones and           220; Chinese and English)
some municipalities have increased discretion when          3. Administrative Measures for Tariff and
approving projects with investments of up to RMB 200           Import/Export Trade (February 2002; price: RMB
million. Ministries or bureaus that are directly sponsor-      240; Chinese only)
ing a particular project also have a considerable say in      All three books are issued yearly. They can be pur-
approval processes regarding that project. EPB              chased from the General Customs Administration
approval is necessary for all projects, and national-       Bookshop, No. 6 Jiannei Dajie, Dongcheng District,
level SEPA approval is required for projects with           Beijing 100730; tel. +86 (10) 6519-4173.
investments of more than RMB 200 million,
transprovincial projects, projects with potential for
causing transprovincial pollution, nuclear facility proj-   Facilitating Market Entry
ects, and projects that involve a degree of state secrecy
or state security concerns.                                 U.S. Government Programs Facilitating
   The approval processÑwhich can take from 12 to 24        Environmental Exports to China
months, contingent upon project complexity, financial
sourcing, and requisite approvalsÑgenerally proceeds          There are several U.S. government programs that
as follows:                                                 specifically support environmental exports to China.
                                                            The U.S. Ex-Im offers several applicable programs. In
1. Project proposal and pre-feasibility study               addition, the U.S. and Foreign Commercial Service in
2. Review meeting of all associated local officials         Beijing assists exporters and facilitates ad hoc arrange-
3. Initial approval by the appropriate-level planning       ments with other federal- and state-level government
   commission, trade commission, or finance bureau          agencies.
4. Completion of feasibility study and EIA
5. Second review meeting of all associated                  The Export-Import Bank of the United States. The Ex-
   local officials                                          Im has a number of non-environmentally specific short-,
6. Feasibility study approval                               medium-, and long-term programs to support U.S.
7. Project implementation                                   exports to China. Spare parts, raw materials, quasi-cap-
                                                            ital goods, consumer goods, and bulk agricultural com-
   For a detailed discussion of the approval process, as    modities can be supported by the bankÕs short-term
well as of project financing, see the U.S. and Foreign      credit insurance policies, while capital goods and relat-
Commercial ServiceÕs Environmental Project Approval
                                                            ed services can be supported by medium- and long-term
and Financing in China: A Perspective for U.S.
                                                            loan and guarantee programs.
Companies.
   For up-to-date information on customs regulations           Operational agreements between the Ex-Im and both
and procedures, import documentation, finance regula-       the Bank of China and the CDB are in place. Several
tions, economic and market information, laws and pro-       other banks can and do work with Ex-Im, and loans to
cedures for licensing and investment, and U.S.              other entities are considered provided they meet all nec-
government regulations and restrictions, see the            essary standards to the satisfaction of the Ex-Im and
ChinaÑCountry Information section of the U.S.               PRC law. Prior to October 2000, Ex-Im lending and
Department of CommerceÕs International Trade                finance relationships were mainly restricted to govern-
Administration Web site (www.trade.gov/td/tic/) and         ment entities. The bank now allows U.S. exporters and



90 U.S. Department of Commerce, International Trade Administration
Chinese buyers of U.S. goods to apply for financing of       aspects of trade. Information is available online at
private sector transactions.                                 www.trade.gov/td/tic/.
   The Ex-ImÕs Environmental Exports Program supports
                                                             U.S. Trade and Development Agency. In mid-January
exporters of applicable goods and services as well as
                                                             2001, President Clinton lifted the suspension of TDA
exporters involved in foreign environmental projects. The
                                                             activities in China. TDA programs had been suspended
program includes the following elements:                     in 1990 in line with the legislative reaction to the
q   A short-term environmental export insurance policy       Tiananmen incident of 1989. The legislation permits the
    for small businesses, which offers as much as 95         president to terminate the suspension if doing so is
    percent commercial coverage and 100 percent polit-       determined to be in the interests of the United States.
    ical coverage with no deductible.                           The TDA is an independent government agency
q   Enhanced medium- and long-term support for envi-         charged with promoting U.S. private sector participa-
    ronmental projects, products, and services, includ-      tion in projects based in developing and middle-income
    ing local cost coverage equaling 15 percent of U.S.      countries. The agency supports market development
    contract price, capitalization of interest during con-   with pre-feasibility studies, orientation visits, training
    struction, and maximum repayment terms allowed           programs, and technical symposia focused on helping
    under OECD guidelines.                                   U.S. firms enter new markets. Prior to its suspension in
                                                             1990, the TDA committed approximately $24 million to
    Foreign currency-denominated debt through the Ex-        projects in China. Over $1.4 billion in U.S. exports have
ImÕs medium- and long-term programs requires Chinese         been associated with those projects. Environmental pro-
government approval, and final Ex-Im approval is con-        tection is a focus for TDA in China. Information about
tingent upon proper documentation indicating that this       TDA projects and activities is available at www.tda.gov.
approval has been granted. The Ex-Im Web site
(www.exim.gov) contains all pertinent details, as well as
standards for environmental qualifications.                  Monitoring and Consulting for Market Entry
    In March 1999, the Ex-Im, the U.S. Department of            Several consulting firms in China monitor market-
Energy, and the CDB signed a memorandum of under-            entry potential and specialize in bringing technology
standing to initiate a $100 million clean energy pro-        and service providers together with clients. However,
gram. Under the memorandum, the Department of                the consulting sector is not saturated, and given the
Energy and Ex-Im encourage U.S. private industry to          potential for growth, an increasing number of knowl-
work cooperatively with Chinese planners in identify-        edgeable, experienced, and innovative specialists are
ing, assessing, and implementing projects by which to        needed. Consulting firms can select from several spe-
showcase cost-effective and environmentally sound            cialized approaches as follows.
energy technologies. The terms associated with this
fund are the most favorable that Ex-Im offers; however,      Monitoring Multilateral Opportunities for Small
it remains unused because local purchasers believe that      Manufacturers. As noted earlier, bidding for multilat-
the interest rates are too high.                             eral projects can be difficult, particularly for small man-
                                                             ufacturers and companies with little experience in
Environmental Technologies Industries Office. The            tendering for such projects. Part of the difficulty stems
U.S. Department of CommerceÕs Environmental                  from the necessity to monitor projects and prepare to
Technologies Industries (ETI) Office provides U.S.           bid from the very earliest assessment stages of project
environmental technology enterprises with valuable           development. Keeping close watch over all the oppor-
resources and contact information pertinent to environ-      tunities can be difficult, particularly for small opera-
mental markets around the world. ETI works collabora-        tions watching for opportunities in more than one
tively with the U.S. and Foreign Commercial Service in       country. Another difficulty stems from the logistical
Beijing and other public and private organizations to        challenge of bidding successfully, something not easily
monitor the market and to assist U.S. enterprises in mar-    overcome by small companies with no experience ten-
ket entry.                                                   dering for multilateral projects.
   The ETI OfficeÕs China-specific resources are avail-         Small foreign manufacturers could benefit from the
able online at www.environment.ita.doc.gov. The U.S.         presence of a small manufacturersÕ association or pri-
Department of CommerceÕs International Trade                 vate consultants that would simultaneously monitor
Administration offers assistance on more general             multilateral project development and the capabilities




                                                                                      China Export Market Plan 91
  Box 12. Market Development and Bilateral Assistance

 Of all officially assisted environmental exports to China, approximately 60 percent are from Japan, 35 percent from Germany,
 and less than 1 percent from the United States. Industries from countries with strong bilateral aid programs to China are quick-
 ly establishing significant market presence by capitalizing on opportunities generated by publicly funded development assis-
 tance programs.
    Most end users of environmental technology and services in China have a tremendous need for guidance and consulting
 regarding equipment manufacture and procurement, as well as general planning and management. Bilateral assistance programs
 providing this guidance often lead to opportunities for numerous types of contracts.
    The U.S. Agency for International Development (USAID) remains inoperative in China. Economic support funds cannot be
 used in China without specific legislation waiving sanctions imposed after the Tiananmen incident of 1989. Occasional sums
 of money from the Department of Energy or the EPA are available to facilitate bilateral assistance. The recent reintroduction of
 the U.S. Trade Development Agency into China is a positive first step in addressing this issue.


of small manufacturers bidding for such projects. The               together planners, designers, engineers, managers, and
consultants might not only work to match potential                  financial support. Some European groups are currently
clients with business opportunities but also assist in              experimenting with this model, with some degree of
the bidding process for those manufacturers lacking                 success. In effect, a consortium able to address issues
the experience to manage the bid on their own                       within smaller cities travels to the cities (in the form of
successfully.                                                       a traveling exhibition) andÑthrough consultations and
                                                                    demonstrationsÑprovides cost effective modular solu-
Local Assessments and Partner Facilitation. Given
                                                                    tions, which include technology inputs as well as man-
many EPBsÕ lack of clarity in assessing overall local
                                                                    agement tools.
environmental needs and efficient strategies to address
them, ambitious and savvy consultants may find suc-
cess by proactively approaching EPBs, comprehensive-
                                                                    Creating and Maintaining a Market Presence
ly assessing the regional situation, and facilitating the
implementation of environmental protection plans that                  Many foreign-invested environmental industries in
can deliver the greatest impact possible, based on budg-            China currently operate with small profit margins.
etary and social constraints. Such players would have               Their initial purpose is to establish market presence
the dual function of consulting for EPBs on the best                and name recognition that facilitates future market
overall abatement strategies and bringing appropriate               expansion rather than to reap immediate profits.
technology and service providers into contact with the              Creating and maintaining a market presence in China
appropriate EPBs.                                                   now could be vital to future success; however, it
   Consultants interested in such a scenario should look            requires more than innovative products and a solid
to various BOT and PPP projects currently existing in               marketing plan. Firms without reasonable budgets,
China as operational models, draw lessons from suc-                 innovative personnel, patience, and solid relationships
cessful and unsuccessful implementation schemes, and                are unlikely to succeed.
consider undertaking pilot projects to illustrate their
potential to local officials. Consideration should be               Timing Market Entry
given to which environmental issues in the region can
be most effectively addressed for the lowest possible                  Establishing a market presence sooner rather than
abatement costs. Efforts should be made to draw fund-               later is important for several reasons:
ing from diverse sources while simultaneously working               q   Many large firms already maintain strong market
to exploit opportunities presented by various programs                  presence in several sectors. Some claim to hold as
(such as UNIDOÕs program to address the issues of                       much as 50 percent of market share in their respec-
town and village enterprises).                                          tive sectors. Name recognition is important in the
Consortium Development. Foreign investors might                         Chinese market, and a select few are well
want to consider addressing potential projects through a                established. Few markets are saturated, and opportu-
consortium scenario. A consortium would ideally bring                   nities arise for those well positioned to exploit them.




92 U.S. Department of Commerce, International Trade Administration
q   Those hoping to introduce relatively innovative                     reliable decision-makers can be found. Such rela-
    methodologies and technologies need to prove their                  tionships need to be nurtured and used gently.
    feasibility to convince local planners and enterprises          q   Chinese guanxi (relationships) can be stronger than
    of their worth. Pilot projects can be useful in doing               foreign guanxi, regardless of the quality of particu-
    this; however, it takes considerable time and effort                lar operations and products. Chinese companies
    to establish a sound operation. Having a strong pilot               with little or no experience or name recognition
    program in operation may be invaluable as the mar-                  have won contracts over foreign competitors, seem-
    ket continues to open and planners begin looking                    ingly based on guanxi. Therefore, the role of reli-
    for the most effective and efficient methodologies to               able Chinese personnel in local operations is critical
    address particular issues. However, attempts to                     in order to understand the politics of such relation-
    introduce unproven technologies into China are not                  ships, which appear totally mysterious to most U.S.
    usually welcome.                                                    businesspeople regardless of their experience or
q   Understanding the market and key relationships is                   business acumen. A longer-term in-country presence
    critical to success in China. As in most business                   provides ample time to bring such local players into
    climates, personal relationships and networks can                   an enterprise and fully train them in its intentions
    open doors that otherwise would remain closed.                      and operations.
    However, in China, relationships are arguably more
    important than in other markets. It takes time to               Opening Doors
    develop the connections and trust that good relation-
    ships are based on. As market opportunities increase               Those having difficulty breaking into the market or
    in the near- to medium-term future, those most able             establishing a pilot program might consider donating a
    to capitalize on the opportunities will be companies            piece of equipment or services to a wholly Chinese-ini-
    that have established a presence and have the proper            tiated project. Many Chinese environmental initiatives
    connections to exploit them. It must be clearly                 are hard-pressed for financing and equipment and could
    understood, however, that relationships do not neces-           benefit greatly from financial and technical support.
    sarily need to be with powerful national figures or             The Chinese partnerÕs successes may in time open
    those who claim to be such figures. Rather, through             doors and help establish valuable connections for the
    proper research, government functionaries who are               foreign partner, particularly if the Chinese entity is con-


Box 13. Seeking Market Representation and Entry Facilitation
Exporters and foreign investors entering ChinaÕs environmental protection market are often directed toward one or more of a
variety of Chinese environmental protection foundations or societies, or governmental research and policy institutions. These
institutions, such as the China Environmental Science Society, the China Environmental Protection Foundation, and even
Agenda 21 and the CRAES, are not ideally positioned to assist foreign investors in entering the market. Some are research insti-
tutions with no commercial capacities, some are bureaucratic gateways designed to attract and absorb inordinate amounts of
foreign capital, and almost all of them lack a sound understanding of commercial viability and the savvy to facilitate market
entry successfully.
    In contrast, an increasing number of Chinese industries and Chinese and international private consultants are available to
provide market analysis, partner facilitation, legal consultation, and numerous other commercially-oriented services. The best
suited of these entities are usually companies that were founded in China by experienced expatriates or Chinese nationals with
substantial international experience. They have an in-depth understanding of ChinaÕs public and private marketplaces, exten-
sive partnership networks with industry and government leaders at all levels, and well-tuned communication skills.
Additionally, such entities benefit from a privatized commercial business orientation and a definitive separation from central-
ized planning and bureaucracy. Investors are advised to forgo, as much as is possible, any dependence on cumbersome bureau-
cratic obstacles and to seek out private entities with the capacity to streamline bureaucratic interactions and facilitate market
entry by commercially-oriented means. A partial list of these organizations is provided in Appendix D.
    Investors should not, however, be misguided into believing that analysts and consultants based in Hong Kong or Taiwan
are tantamount to such entities based on the Chinese mainland. The Taiwanese and Hong Kong marketplaces are separate enti-
ties from China. Operators based there are also, in essence, foreign investors. Enough capable and experienced facilitators
operate with extreme dexterity within the mainland; little logistical or financial incentive exists to seek consultation from out-
side sources.




                                                                                               China Export Market Plan 93
tracted to implement its scheme on a larger scale and       General Customs Administration. Administrative
subcontracts the foreign entity as a supplier.              Measures for Tariff and Import/Export Trade. Beijing:
                                                            General Customs Administration, February 2002.
   This approach, however, requires extreme caution.
                                                            Stover, Jim, Justin Harris, and Christopher Adams.
As a single example, one French company attempted
                                                            Hard Currency Financing for Environmental Projects
the strategy by donating a piece of equipment to a
                                                            in China, International Market Insight. Beijing: U.S.
Chinese firm establishing a pilot program. The expecta-
                                                            and Foreign Commercial Service, August 1999.
tion was that the French company would be contracted
to provide the equipment if the Chinese firm developed      Wang Jinnan, Wu Shunze, and Luo Hong. Integrating
a commercial project. Instead, the Chinese firm simply      Economic Development and Environmental Protection
reverse-engineered the equipment and facilitated its        in China During the 10th Five-Year Plan Period.
delivery through other means.                               Beijing: CRAES; November 2000.
                                                            U.S. and Foreign Commercial Service, Beijing.
Dispelling ÒNeocolonialismÓ                                 Environmental Project Approval and Financing in
   Chinese planners are wary of anything resembling         China: A Perspective for US Companies. Beijing:
Òneocolonialism,Ó fearing that foreign investors will       November 2000
profit while not contributing to the overall advancement
of the locality. Investors working with local planners      Web Sites
may find that offering training and high-level positions
                                                            BuyUSA:
with good wages to local hires, as well as various tan-
                                                            www.buyusa.com
gential initiatives such as the renewal of public space,
supporting local education, and furthering overall social   China Economic Information:
advancement, will ease such concerns.                       www.cei.gov.cn
                                                            ChinaOnline:
Selected References and Web Sites                           www.chinaonline.com
                                                            State Statistics Bureau:
References
                                                            www.chinastatistics.com
Cao Dong and Sun Rongqing. Environmental
                                                            U.S. Department of Commerce:
Financing in China: A Review. Beijing: CRAES,
                                                            www.doc.com, www.usatrade.gov
SEPA, November 2000.
                                                            U.S. Department of Commerce,
U.S. Department of Commerce International Trade
                                                            International Trade Administration,
Administration, Environmental Technologies
                                                            Office of Environmental Technologies Industries:
Industries Office. Partnering in ChinaÕs Environmental      www.environment.ita.doc.gov
Sector. Washington, D.C.: U.S. Department of
Commerce, 2001. (Also available online at                   U.S. Embassy, Beijing:
www.environment.ita.doc.gov link to ÒMarket                 www.usembassy-china.org.cn
Research,Ó Òby country,Ó ÒChina.Ó)
                                                            U.S. Embassy, Beijing. Country Commercial
General Customs Administration. The Practical               Guide: China:
Handbook for Custom Clearance. Beijing: General             www.usatrade.gov
Customs Administration, March 2002.
General Customs Administration. Customs Import
and Export Tariff of the PeopleÕs Republic of China.
Beijing: General Customs Administration,
December 2001.




94 U.S. Department of Commerce, International Trade Administration
                                                        Appendix A
                                                          Maps
Map A.1 Levels of COD Discharge by Province in the PeopleÕs Republic of China, 1999




Source: SEPA Environmental Protection Yearbook, 1999.




                                                                                  China Export Market Plan 95
Map A.2 Levels of SO2 Pollution by Province in the PeopleÕs Republic of China, 1999




Source: SEPA Environmental Protection Yearbook, 1999.




96 U.S. Department of Commerce, International Trade Administration
Map A.3 Bonded Zones in the PeopleÕs Republic of China




                                                         China Export Market Plan 97
                                               Appendix B
                                             China Contacts


Ministries and Agencies                                Center for Environmentally Sound Technology Transfer
                                                       (CESTT)
State Environmental Protection Administration (SEPA)   Address: No. 109 Wanquanhe Road
Address: No. 115 Xizhimennei, Nanxiaojie               Haidian District, Beijing 100089, China
Beijing 100035, China                                  Director: Shi Han
Tel: +86 (10) 6615-3366                                Tel: +86 (10) 8263-6021
Fax: +86 (10) 6615-1768                                Fax: +86 (10) 8263-6607
Web site: www.zhb.gov.cn                               E-mail: shihan@acca21.edu.cn
E-mail: miyichu@cenpok.net
                                                       Ministry of Construction
SEPA Department of International Cooperation           Address: No. 9 Sanlihe Road
Director: Wang Zhijia                                  Beijing 100835, China
Tel: +86 (10) 6615-1936/+86 (10) 6615-3366,            Tel: +86 (10) 6839-4053
ext. 5542                                              Web site: www.cin.gov.cn
Fax: +86 (10) 6615-1762
                                                       Department of Foreign Affairs
Deputy Director: Zhang Shigang                         E-mail: lizhe@mail.cin.gov.vn
Tel: +86 (10) 6615-9816/+86 (10) 6615-3366             Director: Li Xiankui
ext. 5534                                              Tel: +86 (10) 6839-3655
Fax: +86 (10) 6615-1762                                Fax: +86 (10) 6831-3669

Administrative Center for ChinaÕs Agenda 21 (ACCA21)   Ministry of Water Resources
Address: No. 109 Wanquanhe Road                        Address: No. 1 Ertiao Baiguang Road
Haidian District, Beijing 100089, China                Xuanwu District, Beijing 100053, China
Tel: +86 (10) 8263-6607                                Tel: +86 (10) 6320-2114
Fax: +86 (10) 8263-6017                                Web site: www.mwr.gov.cn
                                                       E-mail: webmaster@mwr.gov.cn
Senior Advisor: Rolf Dietmar
Tel: +86 (10) 8263-5364                                Department of International Cooperation and Science and
Fax: +86 (10) 8263-6017                                Technology
E-mail: dietmar@acca21.edu.cn                          Director: Dong Zheren
                                                       Tel: +86 (10) 6320-2821
Division of Resources and Environment                  Fax: +86 (10) 6320-2822
Program Management
Director: Ke Bing                                      State Forestry Administration
Tel: +86 (10) 8263-4438                                Address: No. 18 Hepingli Dongjie
Fax: +86 (10) 8263-6192                                Dongzheng District, Beijing 100714, China
E-mail: kebing@acca21.edu.cn                           Tel: +86 (10) 8423-8800
                                                       Web site: www.forestry.gov.cn
                                                       E-mail: webmaster@forestry.gov.cn




98 U.S. Department of Commerce, International Trade Administration
Department of International Cooperation        China Development Bank
Director: Qu Guilin                            Address: No. 29 Fuchengmenwai Dajie
Tel: +86 (10) 8423-8721                        Xichang District, Beijing 100037, China
Fax: +86 (10) 8423-8749                        Tel: +86 (10) 6830-6357
                                               Fax: +86 (10) 6830-6350
Ministry of Agriculture                        Web site: www.cdb.com.cn
Address: No. 11 Nongzhanguan Nanli
Chaoyang District, Beijing 100026, China       Foreign Affairs Division of the International
Tel: +86 (10) 6419-3366                        Finance Department
Web site: www.agri.gov.cn                      Director: Guo Lei
E-mail: webmaster@agri.gov.cn                  Tel: +86 (10) 6830-6568
                                               Fax: +86 (10) 6835-8748
Department of International Cooperation
Director: Tang Zhengpin                        State Tax Bureau
Tel: +86 (10) 6419-2484                        Address: 5 Yangfangdian Xi Road,
Fax: +86 (10) 6419-2451                        Haidian District, Beijing 100038, China
                                               Tel: +86 (10) 6341-7114
Ministry of Land and Resources                 E-mail: master@chinatax.gov.cn
Address: No. 3 Guanyingyuan Xiqu
Xicheng District, Beijing 100035, China        Department of International Cooperation
Tel: +86 (10) 6617-5371                        Director: Zheng Faguang
Fax: +86 (10) 6617-5348                        Tel: +86 (10) 6341-7114
Web site: www.mlr.gov.cn/english/english.htm   Fax: +86 (10) 6341-7114

Department of International Cooperation        State Development Planning Commission (SDPC)
Director: Sun Wensheng                         Address: No. 38 Yuetan Nanjie
Tel: +86 (10) 6612-7001                        Beijing 100824, China
Fax: +86 (10) 6612-7005                        Web site: www.sdpc.gov.cn

Ministry of Communications                     Department of Foreign Investment
Address: No. 11 Jianguomennei Dajie            Director: Zhang Xiaoqiang
Beijing 100736, China                          Tel: +86 (10) 6850-1621
Tel: +86 (10) 6529-2114                        Fax: +86 (10) 6850-2977
Web site: www.moc.gov.cn/
                                               Department of Investment
Department of International Cooperation        Director: Jiang Weixin
Director: Hu Jinglu                            Tel: +86 (10) 6850-1780
Tel: +86 (10) 6529-2202                        Fax: +86 (10) 6850-1761
Fax: +86 (10) 6529-2248
                                               State Economic and Trade Commission (SETC)
Ministry of Science and Technology             Address: No. 26 Xuanwumen Xidajie
Address: No. B15 Fuxinglu                      Beijing 100053, China
Xicheng District, Beijing 100038, China        Tel: +86 (10) 6319-2114
Tel: +86 (10) 6851-5544                        Web site: www.setc.gov.cn
Fax: +86 (10) 6851-5004
                                               Department of Resources Conservation and
Department of International Cooperation        Comprehensive Utilization
Director: Wang Shaoqi                          E-mail: jmwbgt@setc.gov.cn
Tel: +86 (10) 6851-5048                        Director: Mrs. Zhao Jiarong
Fax: +86 (10) 6851-5004                        Tel: +86 (10) 6319-3449
                                               Fax: +86 (10) 6319-3460




                                                                          China Export Market Plan 99
Ministry of Foreign Trade and Economic Cooperation     Institutes and Associations
(MOFTEC)
Address: No. 2 Dong ChangÕan Avenue                    China International Center for Economic and Technical
Beijing 100731, China                                  Exchanges (CICETE)
Tel: +86 (10) 6519-8114                                Address: No. 18 Beisanhuan Zhonglu
Web site: www.moftec.gov.cn                            Beijing, 100011, China
E-mail: moftec@moftec.gov.cn                           Tel: +86 (10) 6441-2438
                                                       Fax: +86 (10) 6441-2443
MOFTEC Department of Foreign Investment                Web site: http://cicete-env.chinascape.cn.net
Fax: +86 (10) 6519-7322
E-mail: zhaohong@moftec.gov.cn                         Chinese Research Academy of Environmental Sciences
Director: Hu Jinyan                                    (CRAES)
Tel: +86 (10) 6519-7321                                Address: No. 8 Dayangfang Andingmenwai
                                                       Chaoyang District, Beijing 100012, China
MOFTEC Division of Investment Promotion                Web site: www.craes.unep.net
Fax: +86 (10) 6519-7839
E-mail: tangxl@moftec.gov.cn                           International Cooperation Center
Director: Zhou Ming                                    Director: Zhang Yutian
Tel: +86 (10) 6519-7886                                Tel: +86 (10) 8491-3949
                                                       Fax: +86 (10) 8491-5194
MOFTEC Department of Foreign Trade
                                                       China Association of Environmental
Fax: +86 (10) 6519-7952
                                                       Protection Industries
E-mail: mgsbg3@moftec.gov.cn
                                                       Address: No. 9 Sanlihelu
Director: Guo Li
                                                       Beijing 100835, China
Tel: +86 (10) 6519-7419
                                                       Director: Wu Sanjiang
                                                       Tel: +86 (10) 6839-3827
Imports Division
                                                       Fax: +86 (10) 6839-3748
Fax: +86 (10) 6519-7952
                                                       Web site: www.caepi.com.cn
E-mail: sqzhou@moftec.gov.cn
Director: Zhou Shanqing
Tel: +86 (10) 6519-7727                                Regional Environmental Protection Bureaus
MOFTEC Department of Mechanical and Electronic         Anhui Provincial Environmental Protection Bureau
Product Import and Export                              International Cooperation Division
Fax: +86 (10) 6519-8775                                Director: Yin Fucai
E-mail: jdxcw@moftec.gov.cn                            Address: No. 8 Changjiang Xilu
Director: Chang Xiaochun                               Hefei, Anhui 230061, China
Tel: +86 (10) 6519-8771                                Tel: +86 (551) 282-9112
                                                       Fax: +86 (551) 282-2745
Imports Division                                       Web site: www.aepb.gov.cn
Fax: +86 (10) 6519-8775                                E-mail: xxzx@aepb.gov.cn
E-mail: jdjkc@moftec.gov.cn
Director: Jia Xiaozuo                                  Beijing Environmental Protection Bureau
Tel: +86 (10) 6519-8780                                Technology and Foreign Affairs Division
                                                       Director: Fan Jiansheng
                                                       Deputy Director: Wen Ying
                                                       Address: No. 14 West Chegongzhuang Road
                                                       Handian District, Beijing 100044, China
                                                       Tel: +86 (10) 6842-8670
                                                       Fax: +86 (10) 6842-4576
                                                       Web site: www.bjepb.gov.cn
                                                       E-mail: webmaster@bjepb.gov.cn


100 U.S. Department of Commerce, International Trade Administration
Chongqing Environmental Protection Bureau          Guizhou Provincial Environmental
International Cooperation Division                 Protection Bureau
Director: Huang Hong                               Foreign Affairs, Trade, and Economy Division
Address: No. 212 Renmin Road                       Director: Yang Lingsheng
Yuzhong District, Chongqing 400015, China          Address: No. 83 Zunyi Road
Tel: +86 (23) 6387-6166                            Guiyang, Guizhou 550002, China
Fax:+86 (23) 6387-6166/6385-0021                   Tel: +86 (851) 586-7314
Web site: www.cepb.gov.cn                          Fax: +86 (851) 586-7314/581-3414
E-mail: eic@cepb.gov.cn                            Web site: www.gz.cninfo.net
                                                   E-mail: epbfaec@public/gy.gz.cn
Fujian Provincial Environmental
Protection Bureau                                  Hainan Land and Ocean Environment and
Planning and Finance Division                      Resources Bureau
Director: Lin Junsheng                             Planning, Finance, Science, and Technology Division
Address: No. 138 Fufei Road                        Director: He Shaoqun
Fuzhou, Fujian 350003, China                       Address: No. 59 Haifu Road
Tel: +86 (591) 786 8018                            Haikou, Hainan 570204, China
Fax: +86 (591) 786 8398                            Tel: +86 (898) 533-8010
Web site: fjepb.fj.cn.net                          Fax: +86 (898) 533-7757
E-mail: fjepic@public.fz.fj.cn                     Web site: www.8.silversand.net

                                                   Hebei Provincial Environmental Protection Bureau
Gansu Provincial Environmental Protection Bureau
                                                   Planning and Finance Division
Planning and Finance Division
                                                   Director: Wang Dechun
Director: Ms. Qiao Caiyu
                                                   Address: No. 448 Yuhuaxilu
Address: No. 249 Gaolan Road
                                                   Shijiazhuang, Hebei 050051, China
Chengguan District, Lanzhou, Gansu 730030, China
                                                   Tel: +86 (311) 399-5237
Tel: +86 (931) 886-9839/841-7170
                                                   Fax: +86 (311) 303-6864
Fax: +86 (931) 841-8970
                                                   Web site: http://huanbao.hebei-window.com.cn
Web site: http://gsep.gansu.gov.cn
                                                   Helongjiang Provincial Environmental
Guangdong Provincial Environmental                 Protection Bureau
Protection Bureau                                  Foreign Cooperation Division
Science and Technology Division                    Director: Guo Yuan
Director: Li Zisen                                 Address: No. 6 Hengshan Road
Address: No. 335 Dongfengzhonglu                   Xiangfang District,
Guangzhou, Guangdong 510045, China                 Harbin, Helongjiang 150036, China
Tel: +86 (20) 8355-7483/8313-4685                  Tel: +86 (451) 233-1019/234-4758
Fax: +86 (20) 8354-9381                            Fax: +86 (451) 233-1019
Web site: www.gdepb.gov.cn                         Web site: www.hl.cninfo.net
E-mail: hbkjc@gdepdb.gov.cn                        E-mail: dguo@mail.hrb.hl.cninfo.net

Guangxi Autonomous Region Environmental            Henan Provincial Environmental
Protection Bureau                                  Protection Bureau
Planning and Finance Division                      Planning and International Cooperation Division
Director: Wu Xingwen                               Director: Yi Xusheng
Address: No. 1 Minle Road                          Deputy Director: Ding Xiaoyang
Nanning, Guangxi 530012, China                     Address: No. 1 Shunhe Road
Tel: +86 (771) 283-0476                            Zhengzhou, Henan 450004, China
Fax: +86 (771) 283-0476                            Tel: +86 (371) 632-2701/632-0284
Web site: http://gxephb.nn.gx.cn                   Fax: +86 (371) 632-2701
                                                   Web site: www.henan-window.com
                                                   E-mail: hnpcpe@371.net



                                                                           China Export Market Plan 101
Hubei Provincial Environmental Protection Bureau       Jilin Provincial Environmental Protection Bureau
Science and Technology Division                        Technology and Foreign Affairs Division
Director: Sun Gongsheng                                Director: Zhang Yan
Address: No. 346 Nanchangbayi Road                     Address: No. 54 Renmindajie
Wuhan, Hubei 430072, China                             Changchun, Jilin 130051, China
Tel: +86 (27) 8987-0681                                Tel: +86 (431) 271-7436
Fax: +86 (27) 8786-1455                                Fax: +86 (431) 271-9168
Web site: www.whepb.gov.cn
                                                       Liaoning Provincial Environmental
Hunan Provincial Environmental                         Protection Bureau
Protection Bureau                                      International Cooperation Division
Planning and Finance Division                          Director: Sun Jiaming
Director: Wang Huilong                                 Address: No. 34 Chongshandonglu
Address: No. 75 Chennandonglu                          Shenyang, Liaoning 110032, China
Changsha, Hunan 410007, China                          Tel: +86 (24) 8689-0919
Tel: +86 (731) 549-5269/546-4944                       Fax: +86 (24) 8689-0919
Fax: +86 (731) 546-4923                                Web site: www.lnepb.gov.cn
Web site: http://grwy.online.ha.cn                     E-mail: gjhz@lnepb.gov.cn
E-mail: hnepa@public.cs.hn.cn
                                                       Ningxia Hui Autonomous Region Environmental
Inner Mongolia Autonomous Region Environmental         Protection Bureau
Protection Bureau                                      Regulations Division
Planning and Finance Division                          Director: Jin Guoxing
Director: Wang Xiaoyi                                  Address: No. 79 Minzubeijie
Address: Building No. 5 Xinchengxijie,                 Yinchuan, Ningxia 750004, China
Hohhot, Inner Mongolia Autonomous Region 010010,       Tel: +86 (951) 668-3354
China                                                  Fax: +86 (951) 602-5596
Tel: +86 (471) 692-5254
Fax: +86 (471) 696-1772                                Qinghai Provincial Environmental
E-mail: cht@public.hh.nm.cn                            Protection Bureau
                                                       Planning and Finance Division
Jiangsu Provincial Environmental                       Director: Yin Dahai
Protection Bureau                                      Address: No. 116 Nanshandonglu
Foreign Affairs Division                               Xining, Qinghai 810007, China
Director: Huang Yibing                                 Tel: +86 (971) 817-5650
Address: No. 7 Xikang Road                             Fax: +86 (971) 813-5112
Nanjing, Jiangsu 210024, China
Tel: +86 (25) 663-8459                                 Shaanxi Provincial Environmental
Fax: +86 (25) 331-2450                                 Protection Bureau
Web site: http://jshb.jlonline.com                     Planning and Investment Division
E-mail: jseic@jlonline.com                             Director: Hao Yanwei
                                                       Address: Floor 10, Provincial Government Building
Jiangxi Provincial Environmental                       Xincheng, XiÕan, Shaanxi 710004, China
Protection Bureau                                      Tel: +86 (29) 729-1440
Planning and Finance Division                          Fax: +86 (29) 729-1327
Director: Zou Chengjun                                 Web site: http://sxhbj.shaanxi.gov.cn
Address: No. 16 Hubinnanlu                             E-mail: sxhbj@sei.sn.cn
Nanchang, Jiangxi 330006, China
Tel: +86 (791) 850-9564/851-6177
Fax: +86 (791) 851-6195




102 U.S. Department of Commerce, International Trade Administration
Shandong Provincial Environmental          Tibet Autonomous Region Environmental
Protection Bureau                          Protection Bureau
International Cooperation Division         General Office
Director: Peng Zhenhua                     Director: Huang Guojin
Address: No. 12 Zhijinshijie               Address: No. 61 Jinzhuzhonglu
Jinan, Shandong 250012, China              Lhasa, Tibet 850002, China
Tel: +86 (531) 692-5081, ext. 2308         Tel: +86 (891) 681-1955
Fax: +86 (531) 603-8443                    Fax: +86 (891) 683-5242
Web site: www.sdein.gov.cn
E-mail: sdei@in-public.sd.cninfo.net       Xinjiang Uigur Autonomous Region Environmental
                                           Protection Bureau
Shanghai Environmental Protection Bureau   Planning Division
International Cooperation Division         Director: Wang Yijian
Director: Wu Chengjian                     Address: No. 11 Jiankang Road
Address: No. 161, 1038 Nong,               Urumqi, Xinjiang 830002, China
Huashan Road                               Tel: +86 (991) 281-3946
Shanghai 200050, China                     Fax: +86 (991) 281-9429
Tel: +86 (21) 6226-2351                    Web site: http://public.xj.cninfo.net
     +86 (21) 6226-2788, ext. 9015         E-mail: xjeic@mail.xj.cninfo.net
Fax: +86 (21) 6211-7850
Web site: www.sepb.gov.cn                  Yunnan Provincial Environmental
E-mail: sepbkicl@Mx2.sh.cei.gov.cn         Protection Bureau
                                           International Cooperation Division
Shanxi Provincial Environmental
                                           Director: Yang Weimin
Protection Bureau
                                           Address: No. 27 Xiyuannanlu
Planning and Finance Division
                                           Kunming, Yunnan 650034, China
Director: Qu Zhongrang
                                           Tel: +86 (871) 410-4554/410-4963
Address: No. 10 Xijihuying
                                           Fax: +86 (871) 410-4963
Taiyuan, Shanxi 030009, China
                                           E-mail: ftecd@public.km.yn.cn
Tel: +86 (351) 304-8239
Fax: +86 (351) 304-8239
                                           Zhejiang Provincial Environmental
Web site: www.sxeic.public.ty.sx.cn
                                           Protection Bureau
Sichuan Provincial Environmental           International Cooperation Office
Protection Bureau                          Deputy Director: Ge Weihua
International Cooperation Division         Address: No. 43 Tianmushan Road
Director: Zhang Yong                       Hangzhou, Zhejiang 310007, China
Address: No. 31 Xiyujie                    Tel: +86 (571) 705-5411/705-5412
Chengdu, Sichuan 610015, China             Fax: +86 (571) 705-5412
Tel: +86 (28) 612-5462/611-2219            Web site: http//zepb.zj.cninfo.net
Fax: +86 (28) 611-2219                     E-mail: gjhzb@zjepb.gov.cn
E-mail: epaghc@swww.com.cn

Tianjin Environmental Protection Bureau
International Cooperation Division
Director: Qiao Shousuo
Address: No. 17 Fukang Road
Nankai District, Tianjin 300191, China
Tel: +86 (22) 2336-2553
     +86 (22) 2336-2558
Fax: +86 (22) 2366-8231
Web site: www.tjhb.gov.cn
E-mail: tjhb@nankai.net.cn



                                                                  China Export Market Plan 103
                                              Appendix C
                                   International Contacts


World Bank                                             ADB PRC Resident Mission
                                                       7th Floor, Tower D
World Bank Country Office in China                     Beijing International Financial Building
Tel: +86 (10) 6554-3361, ext. 2030                     156 Fuxingmennei Dajie
Fax: +86 (10) 6554-1686                                Xicheng District, Beijing 100031, China
E-mail: lli2@worldbank.org                             Tel: +86 (10) 6642-6603/05/07
                                                       Fax: +86 (10) 6642-6601
Washington External Affairs Office                     Resident Representative: Bruce Murray
Jill Wilkins/Kimberly Versak
Tel: (202) 473-1792/473-4919                           ADB Web site: www.adb.org
Fax: (202) 522-3405                                    ADB PRC Resident Mission Web site: www.adb.org/PRCM
E-mail: jwilkins@worldbank.org/kversak@worldbank.org   ADB Business Opportunities publication:
                                                       www.adb.org/business/opportunities/default.asp
World Bank Web site: www.worldbank.org                 DACON and DICON data base information:
World Bank Group in China                              www.adb.org/consulting/dacon.asp
Web site: www.worldbank.org.cn/English/home.asp        ADB Country Assistance Plan and other, China-specific
World Bank Monthly Operational Summary: www.world-     information: www.adb.org/China/default.asp
bank.org/html/opr/procure/MOS/contents.html
                                                       International Finance Corporation
                                                       2121 Pennsylvania Avenue, N.W.
Asian Development Bank                                 Washington, DC 20433

ADB Headquarters                                       East Asia and Pacific Department
Postal Address:                                        2121 Pennsylvania Avenue, N.W.
P.O. Box 789 Manila Central Post Office                Washington, D.C. 20433
0980 Manila, Philippines                               Tel: (202) 473-0400
                                                       Fax: (202) 974-4340
Street Address:                                        Director of East Asia and Pacific Department: Javed Hamid
6 ADB Avenue
0410 Mudaluyong City, Philippines                      China Office
Tel: +63 (2) 632-4444                                  9th Floor, Tower B
Fax: +63 (2) 636-2444                                  Fuhua Mansion
E-mail: information@mail.asiandevbank.org              8 Chaoyangmen Beidajie
                                                       Beijing 100027, China
ADB Liaison, U.S. and Foreign Commercial Service       Tel: +86 (10) 6554-4191
Stewart Ballard, Senior Commercial Officer             Fax: +86 (10) 6554-4192
E-mail: Stewart.Ballard@mail.doc.gov                   Resident Representative: Davin MacKenzie

                                                       IFC Web site: www.ifc.org
                                                       Environmental Projects Unit Web site:
                                                       www.ifc.org/enviro/EPU/epu.htm




104 U.S. Department of Commerce, International Trade Administration
Multilateral Investment Guarantee Agency             UNIDO, China Office
Postal Address:                                      2 Liangmahe Nanlu
1818 H Street, N.W.                                  Chaoyang District, Beijing 100600, China
Washington, DC 20433                                 Tel: +86 (10) 6532-4425
                                                     Fax: +86 (10) 6532-6315
Street Address:                                      E-mail: office.china@unido.org
1800 G Street, N.W., Suite 1200                      Representative: Sergio M. Miranda Da Cruz
Washington, DC 20433                                 (E-mail: smiranda-da-cruz@unido.org)

Guarantees
Tel: (202) 473-6167                                  UNIDO, China Investment and Technology
Fax: (202) 522-2630                                  Promotion Office
                                                     No. 5-1-41 Yayuan Diplomatic Compound
Investment Market Services                           No. 1 Xin Dong Lu
Tel: (202) 473-0394                                  Beijing 100600, China
Fax: (202) 522-2650                                  E-mail: ipschina@iuol.cn.net

Marketing                                            Information on China Investment Promotion Service:
Tel: (202) 473-6170                                  www.unido.org/doc/50130.htmls
Fax: (202) 522-2630                                  UNIDO Web site: www.unido.org
                                                     UNIDO in China Web site: www.unchina.org/unido
MIGA Evaluations
Tel: (202) 473-2060                                  Global Environment Facility
Fax: (202) 522-7458
                                                     GEF Secretariat
Legal and Claims                                     1818 H Street, N.W.
Tel: (202) 473-5245                                  Washington, DC 20433
Fax: (202) 522-2640                                  Tel: (202) 473-0508
                                                     Fax: (202) 522-3240/3245
MIGA Web site: www.miga.org                          E-mail: gef@gefweb.org
IPAnet Web site: www.ipanet.net
                                                     Global Environmental Facility Web site: www.gefweb.org
United Nations Development Program
                                                     Japan Bank for International Cooperation
UNDP, China Office                                   Takebashi Godo Building, 4-1
No. 2 Liangmahe Nanlu                                Otemachi 1-chome, Chiyoda-ku
Chaoyang District, Beijing 100600, China             Tokyo, Japan 100-0004
Tel: +86 (10) 6532-3731                              Tel: +81 (3) 3215-1370
Fax: +86 (10) 6532-2567                              Fax: +81 (3) 3215-1597

UNDP Web site: www.undp.org                          Beijing Office
UNDP in China Web site: www.unchina.org/undp         3102 China World Tower
                                                     No. 1 Jianguomenwai Dajie
United Nations Industrial Development Organization   Beijing 100004, China
                                                     Tel: +86 (10) 6505-3825/6/7/8
UNIDO New York Office                                Fax: +86 (10) 6505-1198
New York, NY 10017, USA
Tel: (212) 963-6890                                  JBIC Web site: www.jbic.go.jp
Fax: (212) 964-4116




                                                                            China Export Market Plan 105
Export-Import Bank of the United States                     Chengdu
Washington, D.C., Office                                    No. 4 Lingshiguan Lu
811 Vermont Ave., N.W.                                      Renmin Nanlu Section 4
Washington, DC 20571                                        Chengdu, Sichuan 610041, China
Tel: (800) 565-EXIM (3946)/(202) 565-EXIM (3946)            Tel: +86 (28) 558-3992
Fax: (202) 565-3380                                         Fax: +86 (28) 558-9221
                                                            Web site via www.usembassy-china.org.cn
U.S. Ex-Im Bank Web site: www.exim.gov                      E-mail: chengdu.office.box@mail.doc.gov
(Check Web site for regional offices)
                                                            Guangzhou
Beijing Representative: Doug Lee                            China Hotel Office Tower, #1461
31st Floor, North Tower                                     Liuhua Lu
Beijing Kerry Center                                        Guangzhou 510015, China
Beijing 100020, China                                       Tel: +86 (20) 8667-4011
Tel: +86 (10) 8529-6655                                     Fax: +86 (20) 8666-6409
Fax: +86 (10) 8529-6558/6559                                Web site via www.usembassy-china.org.cn
                                                            E-mail: guangzhou.office.box@mail.doc.gov
International Trade Administration,
Trade Information Center                                    Hong Kong
U.S. Department of Commerce                                 26 Garden Road
Washington, DC 20230                                        Hong Kong
Tel: 800-USA-TRADE                                          Tel: +85 2521-1467
E-mail: TIC@ita.doc.gov                                     Fax: +852 2845-9800
Web site: www.trade.gov/td/tic                              E-mail: hong.kong.office.box@mail.doc.gov

International Trade Administration,                         Shanghai
Trade Development                                           Shanghai Center, Suite 631
Office of Environmental Technologies Industries             1376 Nanjing West Road
1401 Constitution Ave. N.W., Room 1003                      Shanghai 200040, China
Washington, DC 20230                                        Tel: +86 (21) 6279-7630
Tel: (202) 482-5225                                         Fax: +86 (21) 6279-7639
Fax: (202) 482-5665                                         Web site via www.usembassy-china.org.cn
Web site: www.environment.ita.doc.gov                       E-mail: shanghai.office.box@mail.doc.gov

International Trade Administration,                         Shenyang
U.S. and Foreign Commercial Service                         No. 52 Shisiweilu
Please visit the Web site (www.usatrade.gov) to determine   Shenyang, Liaoning 110003, China
the most suitable local contact, or see below.              Tel: +86 (24) 2322-1198 ext. 189
                                                            Fax +86 (24) 2322-2206
Beijing                                                     Web site via www.usembassy-china.org.cn
31st Floor, North Tower
Beijing Kerry Center
Beijing 100020, China                                       American Chambers of Commerce in China
Tel: +86 (10) 8529-6655
Fax: +86 (10) 8529-6558/6559                                Beijing
Web site via www.usembassy-china.org.cn                     China Resources Building, Suite 1903
                                                            No. 8 Jianguomenbei Avenue
                                                            Beijing 100005, China
                                                            Tel: +86 (10) 8519-1920
                                                            Fax: +86 (10) 8519-1910
                                                            Web site: www.amcham-china.org.cn




106 U.S. Department of Commerce, International Trade Administration
Chengdu                                     Hong Kong
606 Hongchuan Mansion                       Bank of America Tower, #1904
17 Lingshiguan Lu                           12 Harcourt Road
Section 4, Renmin Nanjie                    Central, Hong Kong
Chengdu, Sichuan 610041, China              Tel: +852 2526-0165
Tel: +86 (28) 524-2405                      Fax: +852 2810-1289
Fax: +86 (28) 524-8577                      Web site: www.amcham.org.hk
Web site: www.ecomchina.com

Guangdong                                   U.S.-China Business Council
Guangdong International Hotel, M-1115
339 Huanshi Donglu                          Washington, D.C.
Guangzhou 510098, China                     1818 N Street, N.W., Suite 200
Tel: +86 (20) 8335-1476/8331-1898           Washington, DC 20036
Fax: +86 (20) 8332-1642                     Tel: (202) 429-0340
E-mail: amcham@gitic.com.cn                 Fax: (202) 775-2476
                                            Web site: www.uschina.org
Shanghai
Portman Ritz-Carlton Hotel, #435            Beijing
1376 Nanjing Xilu                           CITIC Building, Suite 902
Shanghai 200040, China                      19 Jianguomenwai Dajie
Tel: +86 (21) 6279-7119/7180                Beijing 100004, China
Fax: +86 (21) 6279-7643                     Tel: +86 (10) 6592-0727
Web site: www.amcham-shanghai.org           Fax: +86 (10) 6512-5854
                                            E-mail: USCBC@eastnet.com.cn
Shenyang
City Plaza Shenyang, Tower 1, #1107         Shanghai
206 Nanjing Beijie, Heping District         Jinjiang Hotel
Shenyang 110001, China                      2312 West Building
Tel: +86 (24) 2334-1888, ext. 2117          59 Mao Ming Road
Fax: +86 (24) 2334-1198                     Shanghai 200020, China
                                            Tel: +86 (21) 6415-2579
Tianjin                                     Fax: +86 (21) 6415-2584
Sheraton Tianjin Hotel, Apt. 2205           E-mail: uscbc@uninet.com.cn
Zijinshan Lu, Hexi District
Tianjin 300074, China                       Hong Kong
Tel: +86 (22) 2334-3388, ext. 2205          2802 Admiralty Centre, Tower 1
Fax: +86 (22) 2353-7765                     18 Harcourt Road
E-mail: amchamtj@public.tpt.tj.cn           Hong Kong, China
                                            Tel: +852 2527-5397
Wuhan                                       Fax: +852 2527-1516
David Perry English Training Center, #302   E-mail: uscbc@netvigator.com
32 Dazhi Lu
Wuhan, Hubei 430021, China
Tel: +86 (27) 8277-3508
Fax: +86 (27) 8284-2730




                                                                    China Export Market Plan 107
                                               Appendix D
                           Legal and Market Consultants


This list provides contact information for a small num-   SeattleÑUSA:
ber of legal and market consultants specializing in       5808 Princeton Avenue, N.E.
ChinaÕs environmental industry market. This list should   Seattle, WA 98105
not be considered comprehensive, and it does not imply    Tel: (206) 524-5611
the endorsement of the listed entities by the U.S. and    Fax: (206) 526-1588
Foreign Commercial Service.                               E-mail: info@pactusa.com
                                                          Web site: www.pactusa.com
Future Trends International (Group) Corporation
Web site: www.future-trends.org                           Sinosphere Corporation
                                                          Suite 1720, Sunflower Tower
Shanghai Office:                                          37 Maizidian Street
Central Plaza, Suite 801                                  Beijing 100026, China
227 North Huangpi Road                                    Tel: +86 (10) 8527-5700
Shanghai 200003, China                                    Fax: +86 (10) 8527-5701
Tel: +86 (21) 6375-8886                                   Web site: www.sinosphere.com
Fax: +86 (21) 6375-8887                                   E-mail: anwar@sinosphere.com
E-mail: ftichina@public.sta.net.cn                        Contact: Husayn Anwar
Contact: Farzam Kamalabadi
                                                          Golden State
VirginiaÑUSA:                                             Suite B343 Sunshine Plaza
13876 Park Center Road                                    68 An Li Road
Herndon, VA 20171                                         Chaoyang District, Beijing 100101, China
Tel: (703) 471-1984                                       Tel: +86 (10) 6492-6688
Fax: (703) 471-1909                                       Fax: +86 (10) 6492-9388
                                                          Web site: www.chinaenvironment.com
CaliforniaÑUSA:                                           E-mail: bjogsiee@public.bta.net.cn
Coronada Plaza, Suite I
1085 N. Main Street                                       Environmental Resources Management (ERM)
Orange, CA 92867                                          Web site: www.ermchina.com
Tel: (714) 997-0120
Fax: (714) 997-1334                                       Beijing Office:
                                                          1603 Peng Run Mansion (B)
PACT Industrial Water and Wastewater                      26 XiaoYun Road
Treatment Processes                                       Beijing 100016, China
                                                          Tel: +86 (10) 8458-4031/2/3
Shanghai Office:                                          Fax: +86 (10) 8458-4030
9E Aibang Building                                        E-mail: post@ermchina.com
585 Lingling Road
Shanghai 200030, China                                    Guangzhou Office:
Tel: +86 (21) 6481-2155/6481-2156/6439-9468               37th Floor, Guangfa Finance Center
Fax: +86 (21) 6427-6210                                   83 Nonglin Xia Road
Web site: www.pactchina.com                               Guangzhou 510083, China
E-mail: pact@uninet.com.cn                                Tel: +86 (20) 8731-0216
                                                          Fax: +86 (20) 8731-0199
                                                          E-mail: guangzhou@ermchina.com


108 U.S. Department of Commerce, International Trade Administration
Shanghai Office:                  Paul, Weiss, Rifkind, Wharton & Garrison
Suite 2401, Harbour Ring Plaza    Beijing Representative Office
18 Xizang Zhong Road              2918, China World Tower II
Shanghai 200001, China            1 Jianguomenwai Dajie
Tel: +86 (21) 5385-3050/1/2       Beijing 100004, China
Fax: +86 (21) 6469-2185           Tel: +86 (10) 6505-6822
E-mail: shanghai@ermchina.com     Fax: +86 (10) 6505-6830
                                  Contact: Lester Ross
Beverage and Diamond
1350 I Street, N.W., Suite 700
Washington, DC 20005-3311
Tel: (202) 789-6000
Fax: (202) 789-6190
Contact: Richard J. Ferris, Jr.




                                                       China Export Market Plan 109
                                                   Appendix E
                                                   Web Sites


China Environmental Web Sites                                    q   News on the environment
                                                                 q   Financing assistance
SEPA English-language Web site: http://english.zhb.gov.cn        q   Detailed contacts of U.S. local bureaus for export
Chinese Agenda: 21 www.acca21.edu.cn                                 of environmental technologies

Center for Environmentally Sound Technology Transfer:          www.ita.doc.gov
                                                                 q U.S. Department of Commerce, International
www.cestt.org.cn
                                                                    Trade Administration
     q   Asia-Pacific Economic Cooperation Virtual Center,       q Chinese trade relations working group report on
         information on environmental technologies:                 China permanent trade relations
         www.cestt.org.cn/apec-vc
     q   List of Environmental Web Sites in China:             Golden StateÕs home page:
         www.cestt.org.cn/apec-vc/Web site.asp                 www.chinaenvironment.com/english/whorwe/index.html

  ÒSinosphere,Ó a free on-line journal providing well-         German Embassy: www.ahk-china.com
  researched articles pertaining to Chinese environmental      World Resources Institute: www.wri.org
  issues: www.chinaenvironment.net/sino
                                                               Ondeo Nalco Co.: www.nalco.com
  www.chinaenvironment.com
     q Selection of reports and articles written by environ-   Degremont: www.degremont.fr
        mental specialists                                     European delegation in China: www.delchn.cec.eu.int
     q Articles classified according to main environmental
        issues: water treatment, air pollution                 Links to Chinese newspapers (see selections in the
     q Lists of projects                                       ÒnewsÓ repertory) www.chinadaily.com.cn
                                                                  q Selected articles are inserted in ÒNewspapers and
  www.enviroinfo.org.cn                                             Magazines articlesÓ chapter; to access them, go to
    q Selection of main Chinese newspaper articles                  repertory ÒNews/China Daily OnlineÓ
       (in English translation) about environment;
       updated daily                                           ChinaOnline: www.chinaonline.com
                                                                 q Specialized independent on-line source for busi-
    q List of Chinese environmental technology compa-
       nies and contact details                                     ness-related China news
    q Environmental legislation                                www.eco-web.com
    q Forum and other services                                   q Listing of environmental technologies companies,

  www.ied.org.cn                                                    environmental organizations, and governmental
    q Links to other environmental Web sites                        institutions
                                                                 q Links to each bodyÕs country of origin
    q Case studies
                                                                 q Classification by sector of activity (see listing of
    q Environmental research engines
    q NGO forums                                                    environmental technologies repartition per sector,
    q China facts                                                   which can be used as a data base reference)
                                                                 q ÒGreen Pages Editorial,Ó list of projects with con-
  www.environment.ita.doc.gov                                       tact details
    q U.S. Department of Commerce, Environmental                 q Apparently has not been updated for a
       Technologies Industries                                      long time
    q Analysis of Chinese environmental market by
       American experts                                        TUV: www.tuv.com
    q Description of environmental projects                    China Quality Certification Enterprise Network:
       in China                                                www.isochina.com
    q Schedule of international exhibitions




110 U.S. Department of Commerce, International Trade Administration
  The U.S. Embassy, Beijing (connect to Environment,           National Technology Transfer Center (NTTC): www.nttc.edu
  Science, Technology): www.usembassy-china.gov
                                                               Overseas Private Investment Corporation: www.opic.gov
  Links to provincial and local environmental regulatory
                                                               Small Business Administration: www.sbaonline.sba.gov
  agencies including the SEPAÕs English-language reports
  on the state of the environment in China:                    Trade and Development Agency: www.tda.gov
  www.usembassy-china.gov/english/chenvlnk.html                U.S. Bureau of Reclamation: http://usbr.gov
  Reports of recent developments in ChinaÕs environmental      United States Information Agency (USIA): www.usia.gov
  marketplace (including Hong Kong) via ETIÕs Web site
                                                               Environmental Issues and Resources:
  at www.environment.ita.doc.gov (visit the ÒMarket PlansÓ
                                                               www.usia.gov/topical/global/environ/content.htm
  section)
                                                               USAID, Center for Trade and Investment Services
  Daily updates (in English translation) on water-related
                                                               www.info.usaid.gov/business/ctis/index.html
  environmental projects: www.h2o-china.com
                                                               Environmental Technologies Network for Asia/Americas
  Search on China for trade-related information:
                                                               (ETNA): www.info.usaid.gov/business/ctis/etna.html
  www.tradeport.org
                                                               U.S. Business Advisor: www/business.gov
  U.S. Department of EnergyÕs ÒEnergy Information
  AdministrationÓ: www.eia.doe.gov                             U.S. House of Representatives Law Library:
                                                               http://law.house.gov
  U.S. Department of EnergyÕs ÒEnergy Information
  AdministrationÓ analysis of, China:                          U.S. International Trade Commission: www.usitc.gov
  www.eia.doe.gov/emeu/cabs/china.html
                                                               USDA Foreign Agricultural Service: www.fas.usda.gov
  U.S. Department of CommerceÕs International Trade
                                                               White House: www.whitehouse.gov
  Administration Trade Information Center; includes up-to-
  date tariff and tax information, resources, links, and       PresidentÕs Council for Sustainable Development:
  assistance: www.trade.gov/td/tic                             www2.whitehouse.gov/WH/EOP/pcsd/index.html

  UN Development Business, a comprehensive resource on
  business opportunities for enterprises providing goods
  and services to projects financed by the major multilater-
                                                               State Government Environmental Sites
  al institutions: www.devbusiness.com
                                                               California EPA Envirotech Program:
                                                               www.calepa.ca.gov/envtech.htm

U.S. Government Sites                                          California Environmental Exports:
                                                               www.environmentalexports.com
Department of Commerce, Office of Environmental                International Trade Council of New Mexico: www.itcnm.org
Technologies Exports: www.environment.ita.doc.gov
                                                               Wisconsin Environmental Industry Export Forum:
Department of Energy, Energy Pollution Prevention              www.dnr.state.wi.us/etef
Information Clearinghouse: http://epic.er.doe.gov/epic
Energy Information Administration:
www.eia.doe.gov/environment.html                               International Organizations/Foreign
Department of State: www.state.gov                             Government Sites
Bureau of Oceans and International Environment and             Asian Development Bank: www.asiandevbank.org
Scientific Affairs: www.state.gov/www/global/oes
                                                               Electronic Embassy: www.embassy.org
Environmental Protection Agency: www.epa.gov,
                                                               Environment Canada (the Green Lane): www.doe.ca
www.epa.gov/oia/crp.htm
                                                               European Environment Agency: www.eea.eu.int
Envirofacts Database: www.epa.gov/enviro
                                                               International Atomic Energy Agency: www.iaea.or.at
Export-Import Bank of the United States: www.exim.gov
                                                               International Institute for Sustainable Development:
Global Network for Environmental Technologies (GNET):
                                                               http://iisd1.iisd.ca
www.gnet.org



                                                                                        China Export Market Plan 111
ISO (International Organization for Standardization):   Envirobiz: www.envirobiz.com
www.iso.ch/welcome.html
                                                        International Trade Law Monitor:
Interamerican Development Bank: www.iadb.org            http://itl.irv.uit.no/trade_law
United Kingdom Environment Agency                       ISO 14000 Infocenter: www.iso14000.com
www.environment-agency.gov.uk
                                                        MVTI Technologies: http://members.aol.com/mvti/mvti.html
World Bank: www.worldbank.org
                                                        Water Online: www.wateronline.com
Global Environment Facility:
                                                        Engineers Online: www.engineersonline.com
www.worldbank.org/html/gef/gefgraph.htm
                                                        Pollution Online: www.pollutiononline.com
World Trade Organization: www.wto.org/Welcome.html
                                                        Public Works Online: www.publicworks.com
                                                        RecyclerÕs World: www.recycle.net/recycle/index.html
United Nations Sites
                                                        Rubber Waste Technology:
United Nations Environment Program (UNEP):              www.interpublish.com/rwt/index.html
www.unep.no                                             Sedgwick Insurance: www.sedgwickna.com/infocen.htm
CEDAR (Central European Data Request Facility):         Solid Waste Online: www.solidwaste.com
www.cedar.univie.ac.at
                                                        U.S. Council for International Business:
INFOTERRA: www.cedar.univie.ac.at/unep/infoterra        www.imex.com/uscib
UNEP publications: www.cedar.univie.ac.at/unep          Water and Wastewater Utilities: www.magicnet.net/~met-
United Nations Trade Leads Network:                     zler/page4.html#WaterInterna-tional
www.unicc.org/untpdc                                    WaterWorld: http://waterworld.com
                                                        World Trade Exchange: www.wte.net
Business/Private Sector Sites                           Yahoo:
                                                        www.yahoo.com/Business/Corporations/Environment
Environmental Industry Association: www.envasns.org
Aqua Online: www.aquaonline.com
                                                        Associations
EcoTradeNet: www.ecotradenet.com
Eldis (Electronic Development and Environmental         American Waterworks Association (AWWA):
Information System): www.ids.ac.uk/eldis/eldis.html     www.awwa.org
Envirolink Network: www.envirolink.org                  WaterWiser: www.waterwiser.org
Environment Expert: www.environmental-expert.com        Environmental Export Council: www.ecotradenet.com
Environmental On-Line: www.cleanwater.com               Environmental Industry Associations: www.envasns.org
CNN Environmental News:                                 Hemispheric Center for Environmental Technology
www.cnn.com/EARTH/index.html                            (HCET): www.hcet.fiu.edu
Environmental Law:                                      International Environmental Liability Management
www.webcom.com/staber/welcome.html                      Association: www.magic.ca/ielma/ielma.home.html
Envirotech-Online: www.envirotech.org/index.html        International Tire and Rubber Association:
                                                        www.itra.com/recycle.htm
Global Recycling Network: grn.com/grn
                                                        National Groundwater Association (NGHWA):
Great Lakes Information Network (GLIN):
                                                        www.h2o-ngwa.org
www.great-lakes.net
                                                        Water Environment Federation: www.wef.org
Environmental Systems Corporation:
www.envirosys.com/corp.html                             Water and Wastewater Equipment Manufacturers
                                                        Association: www.wwema.org



112 U.S. Department of Commerce, International Trade Administration
World Resources Institute: www.wri.org                 Yahoo Business and Economy Page:
                                                       www.yahoo.com/Business_and_Economy

Trade Show Information
                                                       Chinese Business, Economic, and Financial
Envirobiz: www.envirobiz.com                           Web Sites
Expoguide: www.expoguide.com
                                                       WTO and PNTR documents and information:
Pollution Engineering: www.pollutioneng.com            www.pntrchina.gov
Trade Show Central: www.tscentral.com                  U.S.-China Business Council magazine:
                                                       www.chinabusinessreview.com

Magazines, Journals, and Periodicals                   China Country Commercial Guide: www.usatrade.gov
                                                       U.S. Embassy, Beijing: www.usembassy-china.org.cn
Asia Environmental Review: www.asianenviro.com
                                                       APEC, China meetings: www.apec-china.org.cn
Canadian Environmental Journal:
www.greenware.ca/cejindex.htm                          U.S.-China Business Council WTO page:
                                                       www.uschina.org/public/wto
Corporate Environmental Strategy:
www.rpi.edu/dept/mgmt/SOM.pages/EMP/ces.html           National Bureau of Asian Research WTO page:
                                                       www.nbr.org/publications
Electronic Newstand: www.enews.com
                                                       Singapore International Business Institute links:
Pollution Engineering: wwwpollutioneng.com             www.chinaupdates.com
Riskworld: www.riskworld.com                           Translated articles from Chinese sources:
Soil and Groundwater Cleanup Online Magazine:          www.sinopolis.com/Archives/Focus/WTO.htm
www.sgcleanup.com                                      Harvard University trade negotiations page:
The Wall Street Journal: www.wsj.com                   www.cid.harvard.cidtrade
                                                       China economic information, Hong Kong Trade Council:
                                                       www.tdc.org.hk/mktprof/china.htm
Directories and Indexes
                                                       Gallup survey on China:
The Amazing Environmental Web Directory:               www.gallup.com/poll/reports/china.asp
www.webdirectory.com                                   CNN news and information roundup:
Biz Web: www.bizweb.com                                www.cnn.com/ASIANOW

EcoTradeNet: www.ecotradenet.com                       Chinese stock information: www.stockstar.com

Environmental Industry Web site:                       Official Chinese Xinhua news agency: www.xinhua.org
www.enviroindustry.com                                 PeopleÕs Daily Web site with government information:
Environmental Route Net: www.csa.com/routenet          www.peopledaily.com.cn

IMEX Exchange: www.imex.com/imex/menu.html             China Daily business weekly:
                                                       www.chinadaily.com.cn/bw/bw_cate1.html
InfomanageÑInternational Trade Resources:
                                                       Information on marketing and advertising on China:
http://infomanage.com/International/Trade
                                                       www.shanghai-ed.com/j-market.htm
International Business Network: www1.usa1.com/~ibnet   China Council for Promotion of International Trade:
International Trade Zone: www.std.com/intltrade        www.ccpit.org/engVersion/index.html
Export Yellow Pages (includes Green Pages):            China information: www.chinainfornet.com
www.export.uswest.com                                  Chinese Business World: www.chinesebusinessworld.com
Trade Compass: www.tradecompass.com                    U.S.-China Business Council: www.uschina.org/press




                                                                                China Export Market Plan 113
World Trade Data Base:                                     Industry Web Sites
www.wtdb.com/investment/ininvest.htm
China Web: www.comnex.com/stocks/stocks.htm                Chemical sector e-commerce: www.chemease.com
PeopleÕs Bank of China: www.pbc.gov.cn                     Chemical sector e-commerce: www.chemross.com
State Administration of Foreign Exchange (SAFE):           Chemical trade information: www.chem-trade.net.cn
www.safe.gov.cn
                                                           China Chamber of Commerce of Metals, Minerals and
Bank of China: www.bank-of-china.com                       Chemicals Importers and Exporters: www.cccmc.org.cn
Ministry of Foreign Trade and Economic Cooperation:        Capital Steel: www.shougang.com.cn
www.moftec.gov.cn
                                                           China copper market information (in Chinese):
PRC Embassy in Washington, D.C.:
                                                           www.copperchina.com
www.china-embassy.org
                                                           Oil market news information (in Chinese):
State Development Planning Commission: www.sdpc.gov.cn
                                                           www.oilnews.com.cn
China tax laws and news: www.chinatax.gov.cn
                                                           China Oil, Gas and Petrochemicals magazine:
Soho: www.soho.com
                                                           www.chinaogp-online.com
Net Ease: www.netease.com
                                                           China Chemical Reporter (magazine): www.ccr.com.cn
China Economic Information: www.cei.gov.cn
                                                           Chemical Products Purchase Information:
Beijing Economic Information: www.beinet.cn
                                                           www.chem.sinobnet.com
State Statistics Bureau: www.chinastatistics.com
Icapital, China data service, Hong Kong:
www.statchina.com                                          Chemical Business Web Sites
China Pages directory: www.china.pages.com.cn
                                                           Chemicals information: www.chempages.com
China Business Net: www.china-businessnet.com
                                                           Chemicals information: www.cheminfo.gov.cn
Foreign Trade Cooperation Network: www.bcic.com
                                                           Chemicals information: www.chemhot.com
Beijing Business Administration Network: www.bigs.cn.net
China Business Resources: www.chinatrading.com             General industry information: www.ChinaCCM.com

Chinabyte: www.chinabyte.com                               Chemicals information: www.chem-trade.net.cn
Shanghai Stock Exchange: www.shstock.cn.net                Chemicals information: www.chem.com
UNIDO investment network: www.cci.com.cn                   Chemical information in South China:
Securities Times: www.securitiestimes.com.cn               www.qjy-chemonline.com
South China Morning Post, China news:                      Plastics: www.cpinfo.net
www.scmp.com/news/china/topchina.idc                       Chemicals information: www.chchin.com
China Market: www.chinamarket.com.cn
                                                           Chemicals information: www.chem.com.cn
China Standard Service Net: www.cssn.net.cn
                                                           Chemical Products: www.chemmarket.gov.cn
The Economist: www.economist.com
                                                           Chemical Policy Making Information: www.jcw.gov.cn
Far Eastern Economic Review: www.feer.com
China Big Yellow Pages: www.chinabig.com                   Chemical Technology: www.techmarket.com.cn

Chinalaw Web: www.qis.net/chinalaw/index.html              China Chemical Week (English newspaper):
                                                           www.chemweek.com.cn
Government White Papers: www.china.org.cn/WhitePapers
China information: www.chinainfo.gov.cn                    China Chemical Daily:
                                                           www.ccin.com.cn, www.chem35.com
                                                           Technology transfer information: www.chemmarket.gov.cn,
                                                           www.techmarket.com.cn




114 U.S. Department of Commerce, International Trade Administration
Chemical information:
www.jcw.gov.cn, www.sinoproject.com
SINOPEC: www.sinopec-ec.com.cn
China and Asia rubber information:
www.asiarubbernet.com, www.asiarubber.com.cn
Steel: www.chinasteel.com.cn
Copper: www.copperchina.com
Metals: www.worldmetal.com
Coal: www.coalinfo.net.cn
China coal information: www.chinacoal.com
China coal information: www.coalnews.com.cn




                                               China Export Market Plan 115
                       Appendix F: Development                        Zones




116 U.S. Department of Commerce, International Trade Administration
China Export Market Plan 117
118 U.S. Department of Commerce, International Trade Administration
China Export Market Plan 119
120 U.S. Department of Commerce, International Trade Administration
China Export Market Plan 121
122 U.S. Department of Commerce, International Trade Administration
China Export Market Plan 123
124 U.S. Department of Commerce, International Trade Administration
China Export Market Plan 125
126 U.S. Department of Commerce, International Trade Administration
China Export Market Plan 127

								
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